By the end of last year small cap shares had surged so hard that many of us were left wondering whether prices had tipped into bubble territory. But rather than a sudden ‘pop’, the story so far in 2014 has been about a steady unwinding of that exuberance. While the broader market has drifted sideways, the small cap and AIM indexes have fallen in value - in some cases sharply. For Stockopedia’s 60 GuruScreens - investing strategies that are inspired by the legends of finance - these conditions have stifled returns.
We made a small technical change to our rebalancing schedule in Q3. Rather than shuffling the portfolios mid-month, we’re now doing it on the last working day of every quarter. It’s a change that makes sense on all sorts of levels, particularly given that we’re now tracking UK, European and US shares.
In the UK, Q3 saw the FTSE 100 dip by 2.5% and the All-Share fall by 1.5%. The FTSE SmallCap XIT dropped by 2.5% and the AIM All-Share fell by 4.5% (now down nearly 12% this year). Over the same 3-month period, the Stockopedia Composite index of all the long-only GuruScreens fell by 4.0%. You can review the aggregate performance charts here.
Quality stocks soar
Among the strategies that look for ‘quality’ factors in a business - like improving financials, efficiency and profitability - it was the Piotroski High F-Score screen that took top spot. Joseph Piotroski’s nine-point accounting checklist is a way of identifying stocks with a track record of improving financial health (learn more about it here). While the F-Score was originally created to help find bargain shares with the best chances of rebounding, this version simply looks for any stock that scores a maximum 9 out of 9. It produced a 4.0% return in Q3, helped by positions in Allergy Therapeutics (+57%), Optimal Payments (+44%) and Croma Security Solutions (+39%).
The Screen of Screens portfolio, which buys stocks that qualify for at least four other GuruScreens, fell 4.1% during the quarter. Its worst performer was SpaceandPeople, which lost a third of its value (see chart). Despite this recent dip in form, the SoS has been a consistently strong…
