Interactive Investor

Winter Portfolios mauled in January

5th February 2016 18:24

Lee Wild from interactive investor

Seasonal investing is nothing new. Statistics going back 20 years show that share prices do best during the long winter months. This anomaly has made smart investors substantial profits for two decades, and last year we launched our own model portfolios based on the simple trading strategy. They were so successful we've done it again.

Known as the six-month strategy, all investors need do is buy a basket of shares on 1 November and sell on 30 April. Investing in the market between these dates only for the past 20 years would have turned £100 into £316. Over 10 years, it would have made twice as much profit as staying invested all year round.

A year ago, we screened the FTSE 350 for the five stocks with the best record of returns between November and April over the past decade - the Interactive Investor Consistent Winter Portfolio. Last year it made a 14% profit compared with 8.7% for the FTSE 350 benchmark index.

We also relaxed the rules slightly to include companies with a track record of at least nine years, but which must have risen at least three-quarters of the time over the past 10 years - our higher risk Aggressive Winter Portfolio. Last year, it returned an impressive 16.9%.

Investing in this year's Consistent portfolio every winter for the past decade would have generated an average gain of 24% (excluding dividends) compared with an average of 5.4% for the FTSE 350. Gains for the Aggressive portfolio wold have averaged over 35%, seven times more than the benchmark.

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

Another "difficult" January

History seems to be repeating itself where our seasonal portfolios are concerned. After a stunning first couple of months, we had what might politely be described as a "difficult" January.

Global stockmarkets had already shown what volatility can do to share prices, with the crash in August and further wild gyrations for much of the rest of 2015. And the panic spilled over into 2016. In fact, it was the worst ever start to a year for equities, tipping many markets into "bear" territory. A rebound toward the end of the month narrowed losses for the FTSE 350 to a respectable 3.1%, but our portfolios were left bearing the scars.

Our Aggressive Winter Portfolio rose almost 4% over November and December compared with a 1.2% decline for the FTSE 350 benchmark index. But it fell 6.7% in January. Last year, the portfolio rallied over 12% in two months before falling 4.5% at the start of the year.

It was similar, but slightly less dramatic, for our Consistent Winter portfolio. Up nearly 6% in the first two months of this year's strategy, it tumbled 10.6% last month. A year ago, a 1% gain turned to a 2% loss between the start and end of January.

When the dust settled, the consistent portfolio is currently down 5.4% since the end of October, the aggressive portfolio is down 3.3% and the FTSE 350 4.3%. Here's how it happened.

Consistent Winter Portfolio

Without doubt, the biggest shock for both of this year's winter portfolios was the demise of equipment rental company Ashtead. It had been a star performer, ending December up 12%, but investors took fright after US peer United Rentals issued a more cautious outlook for 2016.

Fourth-quarter revenue at the American firm, the largest equipment rental company in the world, fell 13%, much more than Wall Street had expected. However, United does a lot of work for the Canadian oil industry where conditions are tough.

Ashtead does not, yet its share price still fell 20% in January. "We believe this is overdone," says Numis Securities analyst Steve Woolf. We hope so, too. Ashtead trades on just 10 times earnings estimates for 2016, so Woolf says 'buy' up to 1,150p.

Regus, another company which appears in both the consistent and aggressive portfolios, had another stinker, too. To be fair, though, the shares have failed to spark so far this winter.

Down 4.9% in December, the workspace provider fell 10.7% last month despite a lack of news. It has done incredibly well over the past few years, outperforming the FTSE All-Share by miles. This could just be a case of profit taking, especially as the shares typically trade on high price/earnings (PE) multiples. Even now, the forward PE is still 19.7 times, reward for rapid profit growth.

Having been up as much as 10% in December, catalytic convertor maker Johnson Matthey fell over 7% in January and is now in negative territory overall. Third-quarter sales were ahead of last year, but Matthey admits times are tough, especially at the Process Technologies and Precious Metal Products divisions.

Normally reliable speciality chemicals high-flyer Croda came off the boil on no specific news. Irish building materials firm CRH got a bloody nose, too, down 8.5%. But it's still a City favourite and there are plenty of benefits to come from the acquisition of Lafarge-Holcim.

Aggressive Winter Portfolio

Our aggressive portfolio outperformed its historically more consistent cousin in January, despite also harbouring performance bad boys Ashtead and Regus. That's down almost entirely to high street tracksuits and trainers chain JD Sports.

After rocketing 7.2% in December following a profit upgrade, the retailer raised earnings estimates again just six weeks later. Investec Securities now thinks the shares are worth 1,280p.

Elsewhere, housebuilder Taylor Wimpey lost 5% last month, although its attractive dividend yield and strong residential housing market continue to underpin the current share price.

We've saved the worst till last in terms of three-month performance. Gaming software giant Playtech is yet to find its feet. Despite rising 3% in December, it fell 7.7% last month and has been underwater since mid-November.

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.