History suggests these 10 shares will be winter winners

Winter Portfolios 2018: our two portfolios are back. Lee Wild unveils the star performers that make up each basket of shares.

Every investor dreams of discovering a strategy able to deliver outperformance and a decent profit every time. We're no different, which is why four years ago a statistical anomaly backed by decades of data piqued our interest.

We adapted the theory to design two portfolios for different risk appetites, made up of stocks which have consistently outperformed over the winter months. Both the consistent and aggressive winter portfolios have beaten the benchmark four years in a row. Can they make it five?

We haven't changed our methodology. Using data supplied by Stock Market Almanac author and mathematician Stephen Eckett, we've identified five stocks which have turned the biggest profit for investors every year for the past decade - our Consistent Winter Portfolio. 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%.

Relaxing the criteria to nine years of positive returns over the past 10 years turbocharges the potential. For a little extra risk, the average historic return of this Aggressive Winter Portfolio reaches 28.2%, six times more than the benchmark. 
 
And the strategy is beautifully simple. It tells you when to buy – 1 November (or late on 31 October) – and even when to sell – close of play on 30 April. Holding these stocks through the six winter months has, historically, generated significantly superior returns than if you had stayed invested all year round.

Visit the interactive investor Winter Portfolios page

Stock market outlook for the next six months

'Choppy' sums up this typically volatile October. The FTSE 350 is currently down 5.4% this month, but had been off almost 8% at its worst a few days ago. Despite a better few days, it's still not far off a two-year low. 

This seasonal strategy dictates that we're now entering the strongest six months of the year, so the sell-off makes these UK stocks even more attractive. But there are hurdles ahead, and this year they're potentially higher and greater in number than ever before. 

Brexit is clearly weighing heavily on investment in UK businesses and domestic shares. A deal could be signed in November or December, or not at all. Final cut-off date for Parliament to see any deal is 21 January, and the UK could be out of Europe at midnight on 29 March.

If that's not enough, US interest rates are increasing fast, bond yields have risen, Trump is still warring with China, Europe is at odds with Italy over its budget, there are mid-term elections in the US and the Saudi scandal threatens serious repercussions for international relations.

ii Consistent Winter Portfolio 2018/19

Company Ticker Activity Track record (years) Positive returns (years) Average 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
Croda International CRDA Speciality chemicals 10 10 15.9

 

Because we've rolled the 10-year screening period forward 12 months, a pretty awful 2007 for most stocks drops out of the data. This means there are far more stocks with a perfect decade of positive returns, and the average annual return increases by 100 basis points to 19%.

That's why big profit generator Bodycote, with 9 positive years out of 10, fails to make the consistent portfolio, but is instead admitted to the aggressive basket of shares (see below). Irish building materials giant CRH and caterer Compass disappear completely following disappointing 2017 performances. 

They're replaced by consistent top performers Howden JoineryHill & Smith and Greene King. The pub chain and brewer was a big surprise to us, but the numbers stack up. In a downtrend for three years and trading near a six-year low, it does exactly what we want it to – underperform in summer, then excel over the winter months.

InterContinental Hotels' portfolio-leading 10% gain last year cemented its place in this year's basket. And no surprises to see Croda keeping its spot for a fifth year. In fact, we know that the FTSE 100 speciality chemicals star has made shareholders a profit every winter for at least the past 14 years!

ii Aggressive Winter Portfolio 2018/19

Company Ticker Activity Track record (years) Positive returns (years) Average returns (%)
Ashtead AHT Equipment rental 10 9 33.9
JD Sports Fashion JD. High street fashion chain 10 9 31.1
IWG IWG Workspace provider 10 9 27.3
Bodycote BOY Heat treatment engineer 10 9 25.3
Rightmove RMV Property website 10 9 23.5

 

Company Ticker Activity Track record (years) Positive returns (years) Average returns (%) Ashtead AHT Equipment rental 10 9 33.9 JD Sports Fashion JD. High street fashion chain 10 9 31.1 IWG IWG Workspace provider 10 9 27.3 Bodycote BOY Heat treatment engineer 10 9 25.3 Rightmove RMV Property website 10 9 23.5

The standard is so high this year that we've restricted entry to the typically more relaxed aggressive portfolio to a minimum nine positive years, from seven in the past. Despite that, the average annual return is an impressive 28.2%.

That claims the scalps of Taylor Wimpey, while a bad 2017 for Travis Perkins triggered its relegation.

With a poor 2007 dropping out of the stats, historically strong AshteadJD Sports Fashion and IWG make the nine-year cut-off, so keep their places in the portfolio. Up almost 10% last winter and 12% in 2016, property website Rightmove makes its debut.

Workspace provider IWG is of particular interest currently. It attracted two bids shortly after last year's strategy ended on 30 April. Both were rejected, but the company remains the subject of rumours it may spin off its Spaces brand.

interactive-investor-logo-small-sizeThis article was originally published on our sister website interactive investor.

This article by interactive investor, Money Observer’s sister website, is provided for information purposes only. The content is not intended to be a personal recommendation, and 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.

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