These Summer Portfolios thrash the market

Six months ago Money Observer's sister website Interactive Investor launched a pair of Winter Portfolios designed to take advantage of an anomaly that had generated big profits consistently over the past decade. Both are up around 16 per cent and have outperformed the FTSE 350 benchmark index by 60 per cent.

Historically, winter has been a more profitable period for investors. However, we have identified a number of stocks which typically do better in the summer months and would have made investors a small fortune over the past 10 years.

Like the Winter Portfolios, the summer version is incredibly simple. All it requires is that investors buy a portfolio of stocks on Friday 1 May and sell it on Friday 30 October. The beauty here is that investors are guided by both a defined entry and an exit point, which takes the stress out of trying to time the market.


As before, we screened the FTSE 350 for those stocks with the best record of returns for the six-month period over the past decade. To keep our portfolio manageable, we picked the top five. We called it the Interactive Investor consistent summer portfolio - our summer smoothie.

Three of the companies included have generated positive returns for nine of the past 10 summers, and two can boast an 80 per cent success rate. In all, the portfolio did better than the FTSE 350 every year and generated an average annual return for the period of 8.9 per cent, easily outperforming the benchmark, up a measly 0.3 per cent.

What's more, the consistent portfolio has lost money just once in the past decade - in 2008 - but even then it beat the FTSE 350 by 19 per cent. The benchmark has actually fallen in three summers out of the past 10.

A slightly more aggressive summer portfolio - our summer sizzler - required some fine-tuning, as did our successful aggressive winter portfolio. We've had to tweak it recently following a takeover situation, but for the better.

By relaxing the criteria very slightly but still demanding a minimum of eight years as a FTSE 350 company, we were able to cherry-pick the most prolific performers.

After also stripping out stocks whose results were skewed by big one-off years, we ended with a basket of shares which together had significantly outperformed the benchmark index every year for the past decade, this time by an average of 17 per cent. Again, this portfolio only lost money in 2008.


Almanac author, maths graduate Stephen Eckett, admits that, while share prices of many stocks fluctuate in regular, albeit different cycles, nailing down the precise reason for seasonal performance is not always straightforward.

'In some cases, it may be simple to find an explanation for the seasonal behaviour; for example, Greene King shares are often strong in the months of June and July as investors probably anticipate good sales in the summer,' says Eckett.

'But not all such seasonal share price moves have such an obvious explanation. An example would be the shares that perform relatively strongly in the six-month period May-October; more analysis may be required to uncover the underlying reason for this.'

Of course, these portfolios are high-risk options and will not be suitable for all investors. There's a general election just a week into this trading strategy, too, which could affect share prices.

However, we carried out some research into the City adage 'Sell in May and go away, don't come back till St Leger Day', usually in the second week of September, and stockmarket performance during the summer of an election year.

We found that the FTSE 100 has fallen in just two of six summers in election years since the FTSE 100 was created in 1984. Even in the losing years - 1992 and 2001 - losses were more to do with a recession in the UK then a post dotcom bubble recession in the US and Europe.

On Thursday 30 October, we will reveal which companies made the final cut and make both the Interactive Investor Consistent and Aggressive Summer Portfolios available for investors to buy.

This article was written for our sister website Interactive Investor.

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