ii winter portfolios 2018: Consistent shares deliver huge profit

Markets are volatile again, but interactive investor's consistent basket of five shares turned a significant profit in just one month while the benchmark index tumbled. Lee Wild explains how.

This year's interactive investor Winter Portfolios launched following a significant sell-off in October, and the wider market registered further losses in November. It certainly wasn't plain-sailing for our winter winners, but our consistent basket of shares just delivered one of the best monthly performances of any winter portfolio in five years.

Yes, markets are volatile this time, but that our five consistent stocks, which have put in solid performances year in year out, did so well is no surprise. The criteria for making our consistent portfolio is that each constituent must have risen between the end of October and end of April every year for at least the past decade.  

Owning these five during the past 10 winter periods only would have generated an average annual return of 19%. The FTSE 350 benchmark index managed just 4.5%.

In November – the first month of the 2018-19 winter investing strategy – the interactive investor Consistent Winter Portfolio returned 6.6% compared with a 2.1% decline for the FTSE 350 benchmark index.

interactive investor Consistent Winter Portfolio

Source: interactive investor  Past performance is not a guide to future performance

Infrastructure products firm Hill & Smith has averaged an annual return of 18% over the past 10 winters, and it was the star performer in November. 

Ironically, it was a weather-related profits warning that torpedoed the previously high-flying motorway barriers manufacturer back in August. But strong structural growth drivers remain at work, and buyers chased the shares up 20.8% over the month. 

Pub owners have struggled for years as drinkers desert their locals in favour of alternatives. Greene King shares have been in decline, too, but there is an anomaly here whereby the pub chain and brewer typically does well in the winter.

In just one month its share price surged 13.8% to a four-month high. Richard Hunter, interactive investor's head of markets, said following last month's half-year results:

"Careful balance sheet management and the tailwinds of good summer weather and the World Cup have left Greene King in a strong position. The current yield of 6.5% is punchy in a low interest rate environment and the yield has become something of a guarantee from Greene King over the years."

Industry giant InterContinental Hotels Group rose more than 2% during the month and Croda International - the speciality chemicals blue-chip that's risen in each of the past 14 winter periods - added 1.2%.

Only fly in the ointment was kitchen supplier Howden Joinery. Despite starting the strategy strongly, the shares have drifted back. Still, they're modestly valued and expected to deliver high single-digit profit growth in each of the next three years. 

Past performance certainly suggests the possibility of a rebound at some point. Howden shares have risen in each of the past 10 years, generating an average annual return of 22%.

interactive investor Aggressive Winter Portfolio

Source: interactive investor  Past performance is not a guide to future performance

The interactive investor Aggressive Winter Portfolio comes with extra risk, but carries the potential for greater reward. The average annual return for this years’ five constituents is a mouth-watering 28%. 

That extra risk was exposed in the first month of the portfolio, with some of the high beta stocks falling foul of the wider market downturn.

Once the numbers are put through the wringer, the portfolio was down 4.4% in one month versus the 2.1% decline for the benchmark. 

Main culprit was equipment rental giant Ashtead The US focused appeared to be bouncing back from an early sell-off in line with the markets, but gains made over the past couple of years continue to unwind. Above £24 in September, the shares ended November down 9% on the month below £18.

Heat treatment engineer Bodycote is another top performer that's coming off the boil. Up an average of 25% each year of the past decade, it ended November down 7.5%. Concerns around the automotive and industrials business are behind the sell-off, but analysts still think the shares are over 800p, implying upside over the next six months.

Property website Rightmove was down 3%. City experts are divided - JP Morgan argues that potential is already priced in, while UBS believes there's 10% upside from current levels. If history is anything to go by, Rightmove is capable of double-digit returns over the winter months.

Elsewhere, winter star JD Sports Fashion has made a weak start to the six-month strategy. However, the tracksuits and trainers chain was slow out of the blocks last year before ending with big gains, so do not write it off yet.

Workspace provider and former bid target IWG was the only 'aggressive' constituent to end the first month with a profit. It added 1% for the month, but had been up over 11% within the first week of the strategy following a confident third-quarter update.