If you limit your portfolio to the safest US stocks, there is no edge over passive investing with ETFs

By Jeffrey Cohen, President and Founder, US Advanced Computing Infrastructure, Inc. A consultancy and investment advisory firm.

There is no edge when you remove risky companies in your stock portfolio.

Last night we updated our Chicago Quantum Net Score to reflect market conditions. US stock indices are showing weakness and this is reducing future, expected returns. US Treasury (UST) bonds, notes and bills are also showing weakness through higher yields, which raises risk-free rates of return. The combination reduces the expected gains from investing in US equities.

With rising UST interest rates, US-listed stocks face a higher borrowing cost on their variable-rate debits, which are usually priced with a spread added to a policy or bank-to-bank lending rate. Those spreads were recently 1% to 9% over 3-year Treasury Notes based on diversified US Corporate Bond indices from Bloomberg and ICE.

Our changes to model input parameters were as follows:

Companies may have 5x Debt to Net Income (was 4x)

Minimum volume traded yesterday: 30,000 shares (was 20,000)

Risk-free return is 5.46% (was 6%)

Floor rate of return for each US equity index is 5% (was 6%). This impacted the Russell 2000 since it has a historical negative return.