Some StockRank Portfolio Strategy Returns - 2013 to 2017

Friday, Jan 20 2017 by
42
Some StockRank Portfolio Strategy Returns  2013 to 2017

We’re working on some internal data research tools at Stockopedia which will contribute to a lot of editorial insights, and we hope, some really great product launches in future. Here’s a few insights from my own recent research into the performance of UK StockRanks strategies in the last few years. 

(Disclaimer: Past performance not an indicator of future results etc).

1. Sector Diversification - does it reduce returns ?

How did a NAPS portfolio process (picking the top 2 stocks from each sector) stack up against selecting the top 20 ranked stocks without any additional diversification ? Here’s a chart of the NAPS based approach…

naps.jpg

Meanwhile the top 20 by StockRank without additional diversification:

Figure_1.jpg

The performance was very similar, but the sector diversified portfolio performed much more smoothly. The “Top Ranked” portfolio was only invested in an average 3 sectors throughout the whole period, whereas the NAPS invested in 10 sectors consistently. Essentially, the NAPS process led to stronger risk-adjusted-returns.

The observant will know that my New Year’s NAPS portfolio (written up here) returned only just over 5% in 2017. The reason it didn’t keep up with the first chart above was because I meddled with my original rules ! Meddling with rules hasn’t paid.

2. Just 10 stocks - do concentrated portfolios outperform ?

Does extra breadth in a portfolio really add any performance ? I’ve long argued that if you are a systematic investor it makes sense to broadly diversify. If you are genuinely a talented stock picker (which you probably aren’t) then you should concentrate. Here’s a chart of a Top 10 only NAPS portfolio.

Figure_1-1.jpg

A nice performance, but it shows a significantly reduced return versus a more broadly diversified 20 stock portfolio and a lot more volatility. Concentration hasn’t paid.

3. Microcaps - is there an edge in hard to trade shares?

All the above tests have a minimum £50m market cap cutoff - i.e. they are excluding the microcaps. If we drop that to a £10m cutoff to let in the top ranking microcap shares how would it have done ?

Figure_1-3.jpg

It’s squeezed a bit more performance, but I’d argue that the additional transaction costs and volatility may not warrant the extra effort required to trade them. Microcaps appear to pay… but at what cost?

4. Large Caps - can you beat the FTSE…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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34 Comments on this Article show/hide all

London2000 22nd Jan 15 of 34

Do these returns account for trading costs and dividends? If not, why is that? Surely some sensible assumptions could be made.

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London2000 22nd Jan 16 of 34
2

Superb website by the way! New to this. Much prefer your approach to Motley Fool Share Advisor. Would you describe their approach as one of "story stock tips"? That's my impression.

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Ron1302 23rd Jan 17 of 34

I also set up NAPS virtual portfolios for 2015/6/7 using £1000 for each stock. Some of the stocks I already owned. I use them to track my own portfolio against NAPS, some very interesting results. I wish I could be more disciplined about reading the ED's daily posts, could have prevented some costly losses e.g, GLOBO.
Keep up the good wok guys

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zeibots 23rd Jan 18 of 34

Hi Ed,
Rather than spreading my portfolio over all the top performers in all the sectors, I look at the 6 month RSI for my stock rank based investment strategy as well as the 3 month RSI for the sectors that are most improving relative to the 6mth RSI. For sectors read industry groups that gives me a sharper focus.
Would you please comment on this.

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awoodj 23rd Jan 19 of 34

Hi Ed, how does that compare to say the FTSE250 or similar over the same time period as really a graph showing out-performance or under-performance against the benchmark is most useful way to look at it, at least in my opinion. Be nice to see that index added into the chart and see the relative performance against it.

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Edward Croft 23rd Jan 20 of 34

In reply to awoodj, post #19

FTSE 250 is up about 33% in the same timeframe which these strategies have comfortably outperformed.

I'm not sure it's an appropriate benchmark though - it's a market cap weighted mid cap index... most private investors on this site deal in small caps in equal weight. An equal weighted FTSE + AIM All Share would be a good benchmark I think... but sadly it doesn't exist.

Blog: Follow @edcroft on Twitter
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BH1991 24th Jan 21 of 34
1

Ed,

Thanks for the article. Do you see any significant improvement in performance if you rebalanced each quarter?

Thanks
Ben

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rick 24th Jan 22 of 34
6

Hi Ed,

Enjoyed reading this article.

Based on your own analysis of your NAPS screens what would be the coolest thing ever would be if one could backtest one's own custom screens with rebalancing.

Whilst we have Guru screens that are great and NAPS etc. The ability to do a genuine query of the Stockopedia database with ones own defined investment criteria, would really put Stockopedia well beyond any other private investor product out there.

Guess the main concern might be computer time used. I personally would gladly wait hours/days to be able to get the results.

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Edward Croft 24th Jan 23 of 34
4

In reply to rick, post #22

rick - we're building a backtester at the moment... but it's a top secret development. These charts are a simple backtester that I built, but it's slow. We're building a blazing version... but I'm not going to say when it will be released !

Blog: Follow @edcroft on Twitter
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rick 24th Jan 24 of 34

In reply to Edward Croft, post #23

Thanks for the prompt reply. You have already done an amazing job with Stockopedia, this would certainly be the icing on the cake for me and I'm sure many other users (and prospective users). To be able to put ones own investment ideas to the (back)test, would be a massive advantage over other available investment products. It is certainly a development worth waiting for !

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coniston 25th Jan 25 of 34

Hi Ed,nice set up here,have been with you 6 weeks now & find it saves me a lot of time.The performance of the ftse 250 since the start of 2013 to 2017 has on my reckoning been up around 50% not including dividends.

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Edward Croft 25th Jan 26 of 34

In reply to coniston, post #25

The above charts start on StockRank day 1 - April 20th 2013. Rather than Jan 1st 2013.
FTSE 250 is a 33.4% return since then (excluding divis).
(18164-13616)/13616

Blog: Follow @edcroft on Twitter
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coniston 25th Jan 27 of 34

Thank you Ed for prompt reply.Got u ,makes a big difference..

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pka 25th Jan 28 of 34

Hi Ed,

This is a very interesting article. However, it isn't much use to me personally at present, because I sold my NAPS portfolio and all my other individual company stocks after the Brexit vote last summer and I reinvested the proceeds in a portfolio of Investment Trusts. This was because I was worried (possibly incorrectly) that Brexit is likely to increase the volatility and risk of holding individual UK company stocks, and I wanted to diversify my portfolio internationally.

I found it very frustrating that I was unable to create screens on Stockopedia for Investment Trusts. What I was able to do, though, was to create a dummy portfolio on Stockopedia containing all the Investment Trusts that I might consider buying shares of. I find that useful, because it provides information about, and the ability to sort against, market capitalisations, spreads, dividend yields, Betas, and Share Price Changes over the previous 6 months, 1 year and 5 year, as well as the ability to view graphs of share prices over various previous periods for the Investment Trusts in my dummy portfolio. But it would be even more useful to me if Stockopedia would provide information about the discount of each Investment Trust to its Net Asset Value. As that is just a single item of data for each Investment Trust, Is there any chance of that happening in the near future?

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Edward Croft 31st Jan 29 of 34

In reply to pka, post #28

pka

This is a very interesting article. However, it isn't much use to me personally at present, because I sold my NAPS portfolio and all my other individual company stocks after the Brexit vote last summer.

Personally I think NAPS portfolio strategies should be treated like a benchmark.   There's no magic in them... just straightforward factor-investing (Value, Momentum etc) principles applied in a common sense way in an equal weighted, diversified portfolio. 

Any active management (whether done personally, or done by a professional for you) should be compared against a passive benchmark.  The NAPS process is a pretty passive benchmark... active managers should add some alpha beyond the returns available to such a simple process. 

The reality is that most of them haven't.  No idea what will happen in future of course !

Regarding Investment Trusts - we've bought the data - and I'm sure it will be launched soon enough ...  after everything else in front of it !  Please vote here - http://ideas.stockopedia.com/forums/18977-stockope...



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rpannell 10th Feb 30 of 34
they are market cap weighted and not designed with sound investment principles at heart. FTSE trackers don’t pay.

As much as I agree that the FTSE100 index is flawed from  the point of view that a few shares dominate the index, I cannot agree that tracker funds don't pay. They have 2 important advantages over NAPS portfolios, namely

  no stamp duty on a FTSE ETF. OK, it's only 0.5% for a NAPS portfolio of large caps, but it still ads up

                       AND

no capital gains tax whilst held in the fund. A NAPS portfolio suffers a 20% drag on any increase which is equivalent to around a 4% reduction in growth. An equivalent ETF can roll up CGT free until the ETF is finally sold.

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ISAallowance 10th Feb 31 of 34
2

In reply to rpannell, post #30

I'm sorry, but I don't agree with your second point about CGT. The rebalancing of the NAPS portfolio would effectively allow one to use part or all of the annual CGT exemption each year. The ETF would only be able to use one year's exemption when finally sold (unless sold partially spread over tax years).

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dmjram 11th Feb 32 of 34
1

In reply to ISAallowance, post #31

Plus of course most investors use a tax free ISA or SIPP wrapper, so no CGT even if the annual allowance is used up.

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Edward Croft 12th Feb 33 of 34
2

In reply to rpannell, post #30

CGT is only an issue for non-tax relief portfolios.... most people here invest in ISAs and SIPPs.

I do agree of course that stamp duty does need to be taken into account in transaction costs.

But when a NAPS large cap performance has returned over 8% annualised, more than double the 4% annualised performance of a FTSE 100 tracker... it's a rather mute point to suggest that stamp duty is an advantage for tracker funds. The reality is that the market cap weighting & poor security selection criteria of the FTSE 100 kills the returns... that reality dominates any stamp duty advantage.

Have a read of Ben's article on the cap weighting topic. http://www.stockopedia.com/content/why-cap-weighte...

58a01bf359660Why_Cap-weighted_Index_Fund


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rpannell 12th Feb 34 of 34

In reply to ISAallowance, post #31

The CGT position depends upon ones personal circumstances. In my own case the yearly CGT allowance is well and truly busted on other gains, so any NAPS gains on re-balancing becomes subject to CGT.

ETFs allow the capital gain to be rolled over, until the ETF is sold. As there is currently no CGT on death, a very large capital gain on an ETF could potentially be wiped out.

I accept that inside an ISA, an 8% gain is much more attractive than a 4% gain, but in a non tax advantage account, and assuming a yearly turnover of all the shares, the 8% with CGT at 20% only has a very small advantage over the 4% with rolled up CGT.

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About Edward Croft

Edward Croft

CEO at Stockopedia where I weave code, prose and investing strategies to help investors beat the stock markets. I've a background in the City and asset management but now am more interested in building great stock selection tools for the use of investors online.   Traditionally investors online have had very poor access to the best statistics, analytics and strategies for the stock market and our aim is to set that straight.  High Quality fundamental information has been prohibitively expensive in the past and often annoyingly dull. People these days don't just want to know the PE Ratio and look at a balance sheet. They expect a layer of interpretation over data, signal from noise and the ability to know at a glance whether a stock is worth investigating or not. All this is possible using great design and the insights gleaned from quantitative research.  Stockopedia is where we try to make it happen ! more »

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