Three years ago, Interactive Investor launched a pair of seasonal share portfolios based on a statistical anomaly with a compelling track record stretching back decades. Research showed that some stocks consistently outperformed over the winter months. They’ve proved the theory correct every year so far, and we’re hoping our latest 10 stocks will make it four out of four.
The process of finding the right stocks does not change. Again, we’ve teamed up with Stock Market Almanac author and mathematician, Stephen Eckett, who’s run the data used to identify the companies which typically do much better during the winter months.
It’s clear why this six-month strategy is so attractive. Of course, it’s proved hugely successful for over two decades, but it’s incredibly simple, too.
All it requires is that investors buy a basket of shares on 1 November, or late-on in the previous trading session, and sell on 30 April. Buying and holding these portfolios during the winter months only, has, historically, generated far better returns than if you had stayed invested all year round.
As we do each year, we’ve trawled the past 10 years of data and found the five most regular outperformers for our consistent portfolio. Investing in this basket of shares for the past decade would have generated an average annual return of 18%. The FTSE 350 benchmark index averaged just 3.5%.
For the more adventurous, we relax the rules a little in our aggressive portfolio, picking the shares which boast the biggest average annual returns over the past decade, although our winning stocks must still have risen in at least seven of the past 10 years. To compensate for the obvious increase in risk, the average annual profit over the past decade hits 32%.
To buy the 2017 Interactive Investor Winter Portfolios, click here.
What’s in store for the next six months?
Our two baskets of shares have been remarkable performers, but, like last year, we admit there is plenty to be nervous about as the 2017/18 strategy begins.
A year ago, we were fretting about the US election and Article 50. We needn’t have worried as equities surged – the so-called Trump trade – and Article 50 passed without incident. At the end of the six-month strategy, the consistent portfolio had risen almost 10% and the aggressive portfolio almost 30%.
Of course, there are always potential banana skins, and this time is no different. Investors will want to see Trump get his pro-business tax cuts passed. Unwinding quantitative easing and raising interest rates will be on the agenda of major central banks, too, and with it the risk of a policy mistake.
There have also been some mixed quarterly results, and valuations in certain sectors do look rich. The ongoing Brexit saga and its impact on sterling will continue to move markets and geo-politics has the potential to trigger significant swings either way.
Interactive Investor Consistent Winter Portfolio 2017/18
Company Ticker Activity Track record (years) Positive returns (years) Average returns (%) Bodycote BOY Heat treatment engineer 10 9 24.0 CRH CRH Irish building materials 10 10 20.6 Croda International CRDA Speciality chemicals 10 10 15.3 InterContinental Hotels IHG Hotelier 10 9 16.7 Compass Group CPG Caterer 10 9 13.6
There’s just one change to this year’s Consistent Winter Portfolio, which you would expect given these are supposed to be the companies most likely to outperform year after year.
No prizes for guessing speciality chemicals firm Croda International (CRDA), which we know has extended its run of consecutive winning years to at least 13 years, makes the grade for a fourth year.
Irish building materials giant CRH (CRH) is in again, and is the other one of the two constituents boasting a perfect 10-year winning record.
Bodycote (BOY) and Compass (CPG) debuted in last year’s basket of consistent shares, and the supplier of coatings to car firms and plane makers returned 40% over the last winter. Compass, one of the world’s largest catering companies, added over 5%. The last time it fell during this six-month strategy was 2007 when most corporates struggled.
InterContinental Hotels (IHG) is 2017’s first-timer. Not only have shares in the Crowne Plaza and Holiday Inn owner risen every year since 2008, when they rise they do it in style. It’s returned double-digit gains in seven of the past 10 years, and often very big numbers.
Interactive Investor Aggressive Winter Portfolio 2017/18
Company Ticker Activity Track record (years) Positive returns (years) Average returns (%) Ashtead Group AHT Equipment rental 10 8 29.0 JD Sports Fashion JD. Sportswear chain 10 8 28.6 Travis Perkins TPK Builders’ merchant 10 7 24.0 IWG IWG Workspace provider 10 8 24.2 Taylor Wimpey TW. Housebuilder 10 7 54.4
Last year was a huge one for our Aggressive Winter Portfolio. There’s a single switch in this year’s basket of shares, with Travis Perkins (TPK), the UK’s largest builders’ merchants, kicking out gaming software company Playtech (PTEC).
The Wickes and Toolstation owner just said it’s on track to achieve full-year expectations despite mixed trading conditions.
There are still opportunities for the other four, too. US-focused rental equipment company Ashtead (AHT) has been a fantastic addition to the winter portfolios over the years, and heavy infrastructure investment in the States could be another big boost to profits. A government promise to keep backing Help to Buy has given Taylor Wimpey (TW.) a new lease of life.
It’s not been so easy for JD Sports Fashion (JD.) and IWG (IWG), formerly Regus. The tracksuits-to-trainers chain is down 20% since the end of last year’s winter portfolio. A trading update in June caused problems, although comments from management since have been more positive, and, as we’ve learned, you never write off JD.
Workspace provider IWG has already issued a profits warning, wiping a third off the share price. It says third-quarter sales have been weaker than forecast, investment will mean extra overhead costs, there’s been weakness in the London market and natural disasters have caused problems elsewhere. Hopefully, the seasonal effect will repair some of the damage.
Get 25% off The Harriman stockmarket Almanac 2018! That’s £18.75 (+P&P) for the print book or £15 for the ebook. Order at Harriman House, entering promotional code ii_ALMANAC2018 (for the print book) or ii_ALMANAC2018e (for the ebook), when you reach the checkout.
Stephen Eckett started his career with Baring Securities and then later worked for Bankers Trust and SG Warburg, during which time he worked in London, Hong Kong and Tokyo. After settling in France, he co-founded Harriman House which has become a leading independent publisher of financial books in the UK. He also writes books on finance including, most recently, the Harriman Stock Market Almanac.
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