Summer portfolios weather storm

Summer is typically more pedestrian in terms of share price performance. However, after extensive research, Interactive Investor has uncovered two seasonal portfolios which have significantly outperformed the wider market over the summer months for the past decade.

Like our hugely successful 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 of this portfolio 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 teamed up again with Harriman House, publisher of The UK Stock Market Almanac, to create two model portfolios. First, we screened the FTSE 350 for those stocks which had delivered the most positive annual returns over the entire previous 10 years. The result is Interactive Investor's Consistent Summer Portfolio - our Summer Smoothie - which has averaged annual growth of 8.9% since 2005. The FTSE 350 benchmark index is up an average of just 0.3%.

Fine-tuning the data to include companies with a minimum of eight years as a FTSE 350 company, and which still generated positive annual returns 70% of the time, generated even bigger potential profits. With greater potential reward comes extra risk, hence the naming of our Aggressive Summer Portfolio - the Summer Sizzler. It has outperformed the benchmark index every year for the past decade, this time by an average of 17%

Here's a round-up of the highlights and lowlights from the fourth month of this six-month strategy.

Market round-up

August was the worst month for many things. The Dow Jones had its worst period in five years and the worst August in 17 years, the FTSE 100 fell the most in any month since May 2012, and British retailers had their worst month since 2008. The weather was terrible, too.

With no obvious catalyst to keep traders buying during the seasonally quieter summer months, the FTSE 100 drifted lower for most of the month until heavy selling really took hold on 19 August. Major concerns about Chinese growth triggered a plunge to multi-year lows both for the blue chip index and our benchmark, the FTSE 350.

Weak data out of China is a worry, and there's a deep suspicion that even these numbers may be over-egging it. Chinese intervention to devalue the yuan aimed to improve exports only reinforces concerns, and a plunge in local stockmarkets is destroying wealth.

At its worst, the FTSE 350 index was down over 13% in August, although bargain hunting nudged the benchmark higher to end the month down a little over 6%. As usual, both of Interactive Investor's summer portfolios did better.

Aggressive Summer Portfolio

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None were immune from the bloodbath in August, and that includes the five constituents in our Aggressive Summer Portfolio. It was a quiet month in terms of corporate news, which left our handful of shares wholly exposed to the whim of the market. It's why the portfolio fell 5.9% over the four weeks. Thankfully, however, it's still in the black, up 0.7% since the end of April. The FTSE 350 is down 9%.

Perhaps predictably, engineering software designer Aveva was least-affected. Its share price fell a modest 1.8%, underpinned by a recent bid from French giant Schneider Electric, while pharma group BTG, one of the portfolio's underperformers, limited losses to 3.5%.

Elsewhere, software supplier Micro Focus, soaps-to-shampoo firm PZ Cussons, and Peppa Pig firm Entertainment One all fell sharply - down 6.7%, 8.6% and 9.6%, respectively.

Consistent Summer Portfolio

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Interactive Investor's Consistent Summer Portfolio actually outperformed its aggressive sister portfolio for the first time. It fell 5.3%, although it would have been even less but for a double-digit decline at Shire. The acquisitive drugs giant launched a $30 billion all-share bid for Baxalta, but the Americans have said they want more before they'll talk.

Aside from PZ Cussons, which weighed on both our seasonal portfolios, pet pharmaceuticals firm Dechra and spirits giant Diageo capped declines at around 3.5%. The Standout performer, however, was National Grid. The power transmission network company rose from a second month after ending July up 4%.

Currently, this consistent basket of shares is down 6% compared with the 9% decline in the wider market.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. 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.