Revealed...our Winter Portfolios 2018
A curious anomaly exists in the stockmarket, which has proved that buying and selling at two specific dates of the year has historically generated better returns than if you stayed invested all year round. Buying a portfolio of shares on 1 November and selling it on 30 April has outperformed over the last 24 years and provides a clear strategy for investors.
According to Stephen Eckett, mathematician and author of The UK Stock Market Almanac, published by Harriman House, winter portfolios leverage off two phenomena:
"The first is the odd feature of shares generally performing better over the winter (November-April) than over the summer (May-October). The second is the identification of certain shares that consistently out-perform the market in the winter period. These two features together can be used to create quite a turbo-charged portfolio."
Constituents of each portfolio are listed below in full with links to respective company pages. The choice to purchase individual lines of stock is that of the individual investor.
Consistent Winter Portfolio
Compiling the two winter portfolios is straightforward. The Consistent portfolio is a basket of five FTSE 350 stocks with the most stable track record of returns over the past decade. Each has risen every year for the past 10 years.
Returns would have averaged 19% per annum over the past decade compared to just 4.5% for the FTSE 350.
|Company||Ticker||Activity||Track Record (yrs)||Positive Returns (yrs)||Av. Returns (%)|
|Howden Joinery||HWDN||Kitchen supplier||10||10||22.4|
|InterContinental Hotels Group||IHG||Hotelier||10||10||20.4|
|Hill & Smith||HILS||Infrastructure products||10||10||18.1|
|Greene King||GNK||Pub chain and brewer||10||10||18.0|
|Croda International||CRDA||Speciality chemicals||10||10||15.9|
Aggressive Winter Portfolio
For the Aggressive Winter Portfolio, the FTSE 350 constituents must have delivered the highest average annual returns over the winter.
While average returns are our primary criterion, stocks must also have risen over the winter months in at least nine of the past 10 years. In return for an increase in risk, the average annual profit over the past decade soars to 28.2%.
|Company||Ticker||Activity||Track Record (yrs)||Positive Returns (yrs)||Av. Returns (%)|
|JD Sports Fashion||JD.||High street clothes retailer||10||9||31.1|
|Bodycote||BOY||Heat treatment engineer||10||9||25.3|
Please Note: Previously, we have offered customers the chance to buy the five stocks in each of the portfolios for a £10 flat fee, then usual commission for each stock sold.
This year, following the migration to a new website over the summer, we are still building out functionality, so are currently unable to offer the same deal. This means anyone interested in the portfolios, which are designed to be held for six months from 1 November 2018 to 30 April 2019, will have to buy and sell each constituent individually at usual commission rates.
While there is no minimum investment for these winter portfolios, investors should be aware that commission can erode any gains made on their underlying investment. If bought and sold on the interactive investor platform, investors may be charged commission of up to £10 to both buy and sell each of the five constituents per portfolio.
Knowing the Risks
Past performance of the underlying constituents is not a guarantee of future performance. The value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. These portfolios are designed for a short trading period, so market fluctuations may be more pronounced. If you buy the portfolio the holdings will not be automatically sold on 30 April.
ii publishes information and ideas which are of interest to investors. Any recommendation made here does not take into account your circumstances. This is not a personal recommendation. If you are in any doubt as to the action you should take, please consult an authorised investment adviser. ii do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.
These portfolios consist of a very limited number of underlying securities. Any portfolio with fewer than 30 constituents is considered ‘highly concentrated’ and subject to a high level of concentration risk. Concentration risk is when there is an insufficient level of diversification which means an investor is excessively exposed to one or a limited number of investments. These portfolios should not therefore be used for all or the majority of an investor’s assets but should be seen as a research or potential trading idea for a part of an otherwise broadly diversified portfolio.
Winter investing for better returns
Data from The UK Stock Market Almanac shows that starting with £100 in 1994, an investor who had been invested in the market continuously for the past 24 years would have seen their money grow to £261 (excluding dividends). However, if they had only invested in the market between 1 November and 30 April every year then that £100 would be worth £327. Conversely, if they had chosen to only invest over the summer months they would have lost money; their original £100 would be worth just £73.
Performance Data Source: Harriman House, publisher of The UK Stock Market Almanac.
For the first time in 2014 interactive investor teamed up with Harriman House to produce two exclusive winter portfolios for ii, designed to capitalise on the seasonal market trend. A 16.9%* return for the Aggressive Winter Portfolio (excluding dividends) was double the FTSE 350's return. The Consistent Winter Portfolio also significantly out-performed, delivering a 14%* return (5.3% above the FTSE 350).
It was tougher in 2015. A long list of headwinds caused a 1.9% fall in the benchmark index, but our Consistent portfolio still rose by 1%*, and healthy dividend income made up for a 1.2%* decline in the Aggressive portfolio.
The year after was the best yet, despite a period bookended by the US presidential election and Article 50, which began the process of Britain’s withdrawal from the European Union. The Consistent portfolio did twice as well as the benchmark index, up 9.5%*. But it was the Aggressive portfolio’s return of almost 30%*, excluding dividend income, that grabbed the headlines.
Our fourth year of winter portfolios was not an easy one. Market volatility spiked as the bells rung in 2018, and a spectacular Santa rally unravelled in equally spectacular fashion when Donald Trump’s tariff idea threatened a trade war with China.
The benchmark index ended the strategy up just 10 points, or 0.25%, from where it began on 1 November. The Aggressive portfolio did much better, rising 1.8%, or 2.9% including dividends. The Consistent portfolio ended down 0.38%, but generated returns of 1.2% when you factor in dividends.
These successes have prompted interactive investor to design two new winter portfolios for this year.
*Performance return of selected portfolios between 1 November and 30 April in 2014/15 and 2015/16 and 2016/17 and 2017/18
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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.
Details of all recommendations issued by ii during the previous 12-month period can be found here.
ii adheres to a strict code of conduct. Members of ii staff may hold shares in companies included in these portfolios, which could create a conflict of interests. Any member of staff intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. We will at all times consider whether such interest impairs the objectivity of the recommendation.
In addition, staff involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.