16% gains as Winter Portfolios have best-ever month
We're now four months into the Interactive Investor Winter Portfolio strategy and things are really beginning to hot up. Launched in October, our two seasonal baskets of shares based on the best-performing stocks of the past 10 years are both thrashing the market.
Now in their third year, that the portfolios are outperforming is no surprise, and picking them was relatively straightforward. Employing the services of Stock Market Almanac author and mathematician, Stephen Eckett, we screened the FTSE 350 for share price performance over the six winter months in each year of the past decade.
Our so-called Consistent Winter Portfolio contains the five most reliable FTSE 350 companies of the past 10 years - each has risen at least 90 per cent of the time. To make our Aggressive Winter Portfolio, stocks must have a 70 per cent success rate over the winter months.
Investing in the reliable basket of shares for the past 10 years would have netted an average annual profit of 18 per cent. In return for the obvious increase in risk, the aggressive portfolio has averaged annual profit over the past decade of 32 per cent.
SHOOTING THE LIGHTS OUT IN FEBRUARY
After beginning the year with a small loss, stock markets fought back in February. The FTSE 100 added 164 points, or 2.3 per cent, as buyers couldn't bear to be out of the market. The FTSE 350 benchmark index was up 2.5 per cent.
Miners struggled, but Kraft Heinz's fleeting interest in Unilever excited the bulls and Unilever trades up 18 per cent for the month. That performance was matched by Rolls-Royce after Goldman Sachs analysts backed a recovery at the iconic engineer.
Despite some mixed company results and stretched valuations both here and in the US, enough firms are increasing profits at a fair lick to generate buying interest.
Donald Trump's first address to Congress came after the final bell of the month, but stocks had already cancelled out losses suffered during a few nervous trading sessions. Markets were also optimistic the president would pull something out of the bag.
And, after a recent mixed performance, both our Winter Portfolios had an amazing month.
Our Consistent Winter Portfolio jumped a stunning 4.8 per cent and the Aggressive Winter Portfolio 6.3 per cent in just one month, thrashing the benchmark.
That gives the aggressive basket of shares a four-month gain of 16.4 per cent and the consistent basket 5.5 per cent, ahead of the FTSE 350, up 4.9 per cent over the portfolio period so far.
AGGRESSIVE WINTER PORTFOLIO
Workspace provider IWG (formerly Regus) had been unimpressive until a few days ago when it sprang to life following full-year results. The numbers were good enough to trigger a 10 per cent surge in the share price, leaving them up over 13 per cent for the month.
Both gaming software laggard Playtech and housebuilder Taylor Wimpey rallied 7.7 per cent. The former announced better-than-expected annual profit and improved cash conversion. Bosses are also bullish on 2017.
Much of Wimpey's full-year update had been flagged already, but strong sales rates and that bumper dividend proved a major attraction, offsetting concerns around Article 50 and Brexit.
With no obvious catalysts, seems two of the portfolio's star performers took a breather in February. Ashtead, up 30 per cent on excitement around Donald Trump's infrastructure spending plans, rose 3 per cent. It had published results in December. JD will not report until April, but still edged up over 1 per cent.
CONSISTENT WINTER PORTFOLIO
A 4.8 per cent gain for the consistent stocks was almost double the benchmark's 2.5 per cent improvement for the month, and that was with Irish building materials giant CRH and catalytic convertor specialist Johnson Matthey posting monthly share price losses of 1.8 per cent and 5.8 per cent respectively.
These two had already done well ahead of the start of this seasonal strategy, driven by the weak pound following June's Brexit vote, so further gains would always be hard won.
It's a similar story with speciality chemicals firm Croda, although it did manage a 4.8 per cent gains for the month following well-received results.
Blue-chip caterer Compass Group jumped 6 per cent following a first-quarter update early in the month. But star billing in February goes to Bodycote.
Few in the investing community will know Bodycote, but the heat treatment specialist that works for car and plane manufacturers is building quite a following in the City.
It was already up 7 per cent for the month, making it the best-performing stock in the consistent portfolio so far. But full-year results extended gains to 19 per cent as the £1.6 billion company triggered a fresh round of profit upgrades in the Square Mile.
'The good news that after a long period of inactivity, the management believes that there are now opportunities to invest as opposed to returning excess cash to shareholders,' said Panmure Gordon analyst Sanjay Jha.
'Our estimates assume no acquisitions, so the risks to forecasts are on the upside. We raise our target price to 872p, which values the stock at 10 times 2017 EBITDA which is conservative given that some of the heavily-indebted stocks like Weir are trading on 18 times EBITDA.
'The fact that Bodycote will also benefit from any cyclical upturn in energy and commodity markets is a bonus.'
This article was originally published on our sister website Interactive Investor.