With a strong five-year track record, here are the stocks that make up this year's Consistent and Aggressive portfolios.
There's a beautifully simple trading strategy that has consistently beaten the wider stock market. Interactive investor (ii) discovered it five years ago and built a pair of winter portfolios that have outperformed every year since.
Based on a statistical anomaly stretching back decades, this seasonal approach to investing proves that, in certain circumstances, it is possible to time the market and generate a profit.
The methodology for the sixth year of both the consistent and aggressive winter portfolios stays the same. Data supplied by Stephen Eckett, mathematician and author of publisher Harriman House's Stock Market Almanac, identifies stocks that have risen every winter – between 1 November and 30 April – for the past decade. Interactive investor pick the top five for the Consistent Winter Portfolio.
Had you owned this 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 17.8%. The FTSE 350 benchmark index managed just 5.0%.
For some extra risk, the 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 27.1%.
Risks for 2019's winter portfolios
A recent article - interactive investor winter portfolios return for Season 6 – explained more about how the ii winter portfolios are chosen, the rationale, historic performance and more.
It also ran through the risk events that investors must monitor over the next six months and, crucially, which might threaten the success of this year's winter portfolios.
There's always risk, of course – a few years ago, the winter strategy was bookended by the US presidential election and Article 50. That time the portfolios still outperformed and turned a profit, but this year is particularly difficult to call, and investors interested in the 2019 Winter Portfolios must understand what could go wrong.
Brexit, a general election on 12 December, plus America's trade war with China are the big worries this time. With the outcomes still far from certain, our portfolios are vulnerable to market volatility, as much as any equity investment. A late-cycle downturn, earnings recession and central bank interest rate policy could also cause problems.
Investors should also note that, while the FTSE 350 index fell over the summer months, a number of this year's constituents have done rather better than normal in the quieter holiday period. It remains to be seen whether this has any dilutive effect on performance this winter.
Consistent Winter Portfolio 2019-2020
|Hill & Smith||HILS||Infrastructure products||10||10||19.6|
|InterContinental Hotels Group||IHG||Hotelier||10||10||19.6|
|Howden Joinery||HWDN||Kitchen supplier||10||10||19.1|
|Croda International||CRDA||Speciality chemicals||10||10||15.7|
Source: Harriman House. Past performance is not a guide to future performance
Just one change in the 2019-2020 Consistent Winter Portfolio. Superstar technology conglomerate Halma (LSE:HLMA), now a FTSE 100 company, leapfrogs Greene King (LSE:GNK), undoubtedly one of the most seasonal and hugely reliable winter performers for the past decade. But the brewer wouldn't have made it this year even with a better historic performance - the business is being bought by CKA Group, the conglomerate owned by Hong Kong's richest man Li Ka-shing.
But Hill & Smith (LSE:HILS) and InterContinental Hotels Group (LSE:IHG) are also fantastically seasonal. For a decade, the shares have, on average, barely budged over the summer months, doing all the hard work over the winter period.
Croda International (LSE:CRDA), the FTSE 100 speciality chemicals star, makes it into this year's most-reliable basket of shares for a sixth year. An ever-present since launch, Croda shares have risen every winter for at least the past 15 years.
Aggressive Winter Portfolio 2019-2020
|JD Sports Fashion||JD.||High street fashion chain||10||9||31.6|
|Bodycote||BOY||Heat treatment engineer||10||9||25.2|
Source: Harriman House. Past performance is not a guide to future performance
As with the consistent portfolio, there's just a single tweak to this year's aggressive portfolio.
Synthomer (LSE:SYNT), the supplier of chemicals used to make paint and latex gloves, makes its debut in our winter portfolios this year.
Clearly, there's a history here of outperformance over the winter months. But Synthomer's shares have almost halved in value since summer 2018 – they're down 28% since April this year - and the £1 billion firm recently warned that "depressed European industrial activity combined with increased political and economic uncertainties" have affected business. Hopefully, lower US interest rates and a resolution to Brexit will provide a much-needed boost before next April!
IWG (LSE:IWG) and Bodycote (LSE:BOY) are solid seasonal shares, typically posting price declines over the summer and rising again through the winter. Ahead of this year's portfolio launch, Bodycote was down over 16% since April, but IWG added another 12%, driven higher by optimism around a shift to a franchising model.
JD Sports Fashion (LSE:JD.) is up a fifth over the summer, benefiting from a flight to quality, an impressive record of profits growth and US expansion ambitions. JD has a good track record of exceeding profit expectations, and it must do well at Christmas to maintain the momentum.
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.
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This article was originally published on our sister website interactive investor.