Achieving superior performance with the Morningstar’s Tortoise and Hare portfolios

Abstract

Morningstar offers two stock portfolios known as the Tortoise and the Hare portfolios with the stocks included in each portfolio published and updated in the Morningstar StockInvestor monthly newsletter. This study examines the performance of these two portfolios using the Sharpe, Treynor and Sortino ratios along with the single-factor capital asset pricing model (CAPM) and the four-factor Fama–French–Carhart (FFC) model. Results examining the Tortoise and Hare portfolios indicate both portfolios outperform the market when using the Sharpe, Treynor and Sortino ratios; however, neither portfolio shows statistically significant abnormal returns when evaluated using the CAPM and FFC model. A third portfolio is created by using equal weights of the Tortoise and Hare portfolios. This combined portfolio exhibits a significant abnormal return of 3.6% per year even after accounting for systematic risk, small-firm effect, book-to-market effect and the momentum effect.

Keywords:

• Morningstar
• analysts
• investment
• stocks
• CAPM

JEL Classification:

• D14
• D11