Wild’s Winter Portfolios 2020: winners revealed

by Lee Wild from interactive investor |

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After running the latest numbers, Lee Wild names the stocks making this year’s winter portfolios.

Every investor wants a trading strategy that works. It sounds like a simple objective, but many spend their entire investment careers looking for one. It’s why, in 2014, we became interested in a seasonal approach to investing that had a track record of success stretching back decades. We tested the theory by building a pair of winter portfolios, and we’re glad we did.

Based on a statistical anomaly with a deep history, the “consistent” and “aggressive” Wild Winter Portfolios take a seasonal approach to investing which proves that, in certain circumstances, it is possible to time the market and generate a profit.

The cherry on top is that this strategy is incredibly simple. Using data supplied by Stephen Eckett, mathematician and author of publisher Harriman House’s Stock Market Almanac, we identify stocks that have risen every winter – between 1 November and 30 April – for the past decade. We pick the top five for Wild’s Consistent Winter Portfolio.

Had you owned the 2020-21 basket of shares for the past 10 winters only, buying on 1 November (or late on 31 October) then selling on 30 April, your average annual return, excluding dividends, would have been 14.9%. The FTSE 350 benchmark index managed just 2.1%.

For some extra risk, Wild’s Aggressive Winter Portfolio relaxes the entry criteria to a minimum nine positive years in the past decade. The five stocks that make the cut this year would have delivered an average historic return of 19.9%.

Normally, we would expect a bigger difference in average annual historic performance between the two portfolios. Last year was over 9 percentage points, this year it’s a more modest 5 percentage points. Even if we relax the entry criteria for the aggressive portfolio to eight years of positive performance in the past decade, average annual return only increases to 21.5%. Last year’s bleak winter for stock markets has obviously affected the numbers, while strong performances in 2009, as recovery from the Great Financial Crisis began, fall outside of the 10-year time frame.

Risks for this year’s winter portfolios

While history tells us that these portfolios have worked in the past, there is no guarantee that they will continue to do so in future. It is why, every year, I talk through what could go wrong, highlighting some of the events that might cause problems for stock markets over the next six months.

I mentioned them in my recent article, but it doesn’t hurt to go through them again here.

The beginning of this winter season is marked by the US presidential election on 3 November. With just days to go until voting day, Democrat Joe Biden leads the opinion polls. Markets wouldn’t normally cheer a pro-regulation president, but Biden is expected to trigger massive fiscal stimulus to combat Covid-19, with obvious benefits for the US economy. History also tells us that Democrat administrations often outperform Republican presidents.

However, according to an interactive investor survey, of greater concern to UK investors is the pandemic and the impact local lockdowns are having on the UK economy.

A Covid-19 vaccine could be just a few months away, or it might be several months from successful widespread deployment. The longer it takes, the greater the impact on UK unemployment and economic growth. Chancellor Rishi Sunak’s massive job support schemes will also need paying for, so tax rises appear inevitable sooner or later. However, a quicker vaccination programme would have an obvious benefit for the global economy and financial markets.

Also of more concern to UK investors than the US election is Brexit and the consequences of ending the transitional period on 31 December without a trade deal with the European Union. Negotiators from both sides are locked in talks aimed at avoiding a no-deal Brexit, which most observers agree is the worst possible outcome. There would be repercussions for many UK-focused stocks.

Existing shareholders in the winter portfolio companies will also be aware that most have already enjoyed a purple patch. They’ve recovered fully from the Covid collapse in March and many are at or near record highs. That's because the shares were cheap, and also because ultra-low interest rates continue to mean that equities are the only option for many people who want a half-decent return on their money. It’s the phenomenon called TINA - There Is No Alternative.

This is clearly good news for shareholders but is something that potential new investors will at least want to bear in mind.

And there are other issues that could trouble markets in the coming months. Think US-China relations, conflict in the Middle East, North Korea, Russian hackers, Iran. That said, we’ve been here before, and markets have shown that they do best at this time of year.

Wild’s Consistent Winter Portfolio 2020-2021

Company Ticker Activity Track record (years) Positive returns (years) Average return (%)
Safestore Holdings SAFE Provider of self-storage 10 10 20.5
London Stock Exchange Group LSE Stock exchange and financial information 10 10 17.9
Halma HLMA Technology conglomerate 10 10 14.1
Croda International CRDA Speciality chemicals 10 10 12.4
Admiral Group ADM Insurance 10 10 9.6

Source: Harriman House. Past performance is not a guide to future performance

There are some big changes in this year’s winter portfolios. Only two of last year’s consistent portfolio shares survive, reward for delivering a profit when others couldn’t. Hill & Smith (LSE:HILS) and Howden Joinery(LSE:HWDN) lose their place after falling 11.9% and 9%, respectively, last year.

Regular followers of the winter portfolios will not be surprised to see high-tech chemicals firm Croda International(LSE:CRDA) make the list of five again. The FTSE 100 company has risen every winter period for the past decade. Because it appeared in our very first consistent portfolio, we know that its record of success stretches back at least 16 years. Who’d bet against it making that 17?

The second of last year’s winners is Halma (LSE:HLMA), a collection of technology businesses targeting sectors where its products will be needed come rain or shine. Its elevator sensors, environmental products, medical devices and safety kit are so defensive that the shares barely fell into negative territory for the 2019-20 portfolio. It ended the strategy up 11.5%.

That means there are three new stocks in this year’s consistent portfolio. Best-known of these is London Stock Exchange Group (LSE:LSE). Its shares fell sharply in March, but they’re now at least where they were before the rout as volatile markets generate extra trading revenue. It’s also in the middle of two big deals. LSE has agreed to sell Borsa Italiana, owner of the Milan stock exchange, to Euronext (EURONEXT:ENX) for €4.3 billion (£3.8 billion). It hopes this will persuade the European Commission to approve its acquisition of data and trading business Refinitiv for $27 billion (£20 billion).

We’ve probably all seen its adverts on TV, but insurer Admiral (LSE:ADM) also has a strong track record of share price performance over the winter months. In the past decade, it has risen an average of 9.6% each winter, but fallen 2.4% on average each summer. A true seasonal performer.

Finally, Safestore Holdings (LSE:SAFE) makes up the five. Providing self-storage has been a lucrative business for the FTSE 250 company, and it expects to meet full-year profit forecasts despite everything that’s happened this year. With 10 consecutive years of winter gains and an average return of over 20%, hopes are high for this newbie.

Wild’s Aggressive Winter Portfolio 2020-2021

Company Ticker Activity Track record (years) Positive returns (years) Average return (%)
Safestore Holdings SAFE Provider of self-storage 10 10 20.5
London Stock Exchange Group LSE Stock exchange and financial information 10 10 17.9
Synthomer SYNT Chemicals 10 9 21.1
Spectris SXS Precision instrumentation 10 9 20.6
Diploma DPLM Technical products and services 10 9 19.5

Source: Harriman House. Past performance is not a guide to future performance

The aggressive portfolio’s survival rate was even worse than for the consistent basket of shares. Just one stock – chemicals firm Synthomer (LSE:SYNT) – makes the 2020-21 portfolio, as JD Sports (LSE:JD.), Ashtead (LSE:AHT) and IWG (LSE:IWG) are among the former favourites punished for losses suffered last winter. While the missing trio are great companies and the first two have since recovered their Covid deficits, there are others with a better performance over the past decade.

Synthomer, the supplier of chemicals used to make paint and latex gloves, made its first appearance in the winter portfolios last year, and repaid our faith with a small profit compared with a FTSE 350 benchmark index that had fallen 18.4%.

So strong have Safestore and the LSE been over the past 10 winters that they also make the aggressive portfolio, just seeing off Hill & Smith and Howden. Joining them is Spectris (LSE:SXS), which was within a whisker of making last year’s portfolio. It produces high-tech scientific instruments used in the pharmaceutical, food, defence and semiconductor industries. The shares are down over 5% during the summer season, in line with its average summer decline over the past decade. With a record of just three winning summers in the last 10, this is the most seasonal performer in the portfolio.

Last, but not least, is Diploma (LSE:DPLM), a near-£3 billion business that supplies products and services to the Life Sciences, Seals and Controls sectors. Customers include hospitals, industrial manufacturers and both the aerospace and motorsport industries. Diploma is an ambitious company that has just raised almost £200 million to buy Windy City Wire Cable & Technology Products, a leading American low-voltage wire and cable distributor, for around £357 million ($465 million).

Stephen Eckett
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.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

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