Winter Portfolio: Reliable stocks rocket by Lee Wild
There’s a seasonal trading strategy that typically generates far better returns than if you had stayed invested all year round. Over the past decade, it has outperformed the FTSE 350 index by at least five-fold. And it’s incredibly simple, too, giving investors both a specific entry and exit date. Now four months into this six-month trade, there’s plenty of reason to be optimistic.
Buy on the first trading day of November and sell on 30 April suggests the strategy. It’s based on the theory that far more money flows into equity markets during the winter months than in the quieter summer period when thoughts turn away from investing and to holidays and the sporting calendar.
We teamed up with Harriman House, publisher of The UK Stock Market Almanac, and fine-tuned the data to generate even bigger potential profits. First, we took the companies which had delivered the most positive annual returns over the past 10 years to form our Consistent Winter Portfolio. It has generated an average annual return of 26% over the past decade. Our Aggressive Winter Portfolio is more flexible on track record, but the extra risk is rewarded with potentially higher returns – an average of 37%.
Here’s a round-up of the highlights and lowlights from the fourth month of this six-month strategy.
February was an historic month for the UK stockmarket and blue chips in particular. A record high for the FTSE 100 on Tuesday 24th ended a 15-year wait and followed numerous failed attempts at breaching the previous best of 6,950.60 set on 30 December 1999.
Housebuilders – Redrow (RDW), Persimmon (PSN), Barratt (BDEV), Berkeley Group (BKG), Bellway (BWY) and Taylor Wimpey (TW.) – all had a stunning month following a particularly strong results season. Early trading in the spring selling season is largely ahead of expectations, too, and further volume growth is anticipated this year.
Check out the bounce in the oil services sector, too. After a savaging in recent months as oil prices plumbed new depths, the sector has sprung back to life amid more stable energy costs and bottom-fishing in what remains a bombed-out industry.
These impressive performances spelled good news for the FTSE 350 index, which rose by 3.4% in February. But it was even better news for our Winter Portfolios, which both easily outperformed the benchmark index, confirming our prediction that last month’s losses were “a temporary hiccup and there is reason to remain bullish”.
Aggressive Winter Portfolio
Having underperformed both the consistent portfolio and benchmark index in January, the Aggressive Winter Portfolio bounced back last month. A gain of 3.9% in February took the portfolio close to its best overall gain since it began in November – up 11.9% – well ahead of the FTSE 350, up a more modest 8.4%.
Four of the five constituents made impressive contributions. Workspace provider Regus (RGU) was chased 17% higher as buyers piled in ahead of full-year results due early March. In advance of the numbers, broker Peel Hunt upgraded its target price from 275p to 300p, still “conservative,” it said. “It does not require overly heroic assumptions to find fair value of 630p.”
After a disastrous start to life in the portfolio, Playtech (PTEC) has climbed steadily since. Last month was especially profitable, with shares in the internet gambling technology firm surging 13%. Excitement built through the month, culminating in a further rally when the company confirmed record results and said it had made a “strong start” to 2015.
Equipment rental firm Ashtead (AHT) returned to form, rising over 9% in the run up to third-quarter results. Strong figures from rival housebuilders had Taylor Wimpey riding a tide of positive sentiment, too, ending the month up 6.7% as its own results loomed.
But the portfolio’s gain would have been twice as impressive had it not been for Bwin.Party Digital Entertainment (BPTY). Its share price slumped by 20% as investors decided that a bid for the firm had become less likely. The online gaming group admitted in November that it was in talks with a number of potential suitors – Canadian firm Amaya seemed the most probable candidate – but not now, it seems.
A 21-page ‘sell’ note penned by the doomsters at Investec Securities proved another nail in the coffin. In short, the broker thinks the share price is inflated on US/German regulation and takeover rumours, and reckons the shares are worth no more than 65p.
The Consistent Winter Portfolio has largely tracked the FTSE 350 since inception at the end of October, but always a few points lower (see chart). That’s largely because of Hunting (HTG), but last month things changed. The oil services provider rocketed 20% in February as the oil price improved and a number of City analysts decided that the recent sector sell-off had gone too far.
It meant the consistent portfolio rallied an impressive 10.8% in the month to a record high, outperforming the FTSE 350 more than threefold. It was also enough to finally bring the portfolio in line with the benchmark index, now both up 8.4% in the past four months.
Clearly, Regus and Ashtead contributed, too, each appearing in both aggressive and consistent portfolios. Elsewhere, fund manager Henderson Group (HGG) continued its meteoric rise, adding another 10% in February for a total over gain since inception of 24%.
Investors anticipating hot results late in the month were not disappointed. Underlying pre-tax profit from continuing operations of £188 million easily beat Shore Capital’s estimate of £179 million, as did net income of £534 million. After such a strong run, the broker now thinks Henderson Group shares have reached fair value at 260p.
Finally, and after a quiet January, speciality chemicals firm Croda (CRDA) rose just 2.7% last month following results, which just missed consensus forecasts. Numis Securities believes far more pluses exist for 2015 than minuses, with a probable return of capital to look forward to. That said, the shares are “no bargain at present levels and some enduring reservations remain”.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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