My StockRanks £20k Portfolio 1 year on (Part 1)

Thursday, Oct 22 2015 by
55

Introduction

During October 2014, I created a new portfolio based on the StockRanks system and publicy announced on the Stockopedia forums during a 6 month review.  You can read about it on the link below.  At the time the portfolio had gained 20%.

My StockRanks Farming Approach - a 20k Real Money Test Portfolio

((edit: updated: - My StockRanks £20k Portfolio 1 year on (Part 2) - The Rebalancing is now published))

But lets recap on my rules based strategy here:

My Farming Rules

  1. The Stockopedia QVM Recipe (Quality > 66, Value > 66, Momentum > 66 
  2. Dividend Yield 12 month rolling > 0
  3. Market Cap > £20m [*1]
  4. Spread (bps) < 500
  5. Sector includes - One screener for each sector (10 sectors in total)
  6. Rebalance every 12 months *new rule

Exit Plan

A stock will leave the portfolio when it goes below StockRank 90 and a more suitable qualifying stock can take its place.  Once the Stock is part of the portfolio the Quality, Value or Momentum figures may go below 66.  That is ok as long as the Stock remains above 90 at the time of rebalancing.

Although I wanted to provide as little human intervention as possible under this system I was able to choose stocks from each sector that I thought would perform better than others.   Unlike Ed Croft's NAPS I am not required to pick the top StockRank of each sector.  I  also reserved my right to intervene when an extra-ordinary or surprise announcement that would adversely impact any stock.

This happened with Plus500 (LON:PLUS) and I decided to sell the stock outside the rebalancing date.  You can read my post about the Plus500 (LON:PLUS) moment in the link below

My Stockopedia 20k Farmed Portfolio - The PLUS500 effect and why I am happy

Portfolio as of 22 October 2015 - 1 year on

Since inception the value of the portfolio has increased by 38%   (based on valuation chart below)

Taken into consideration that we have gone through one of the worst quarters that I have experienced then I think this is a wonderful outcome that has indeed exceeded my expectations.

n5sj80.png

Valuation and Cash Balances

This includes adding £2000 in cash and receiving £260 in re-invested dividends.  When I last reported I was thinking of increasing the portfolio cash balance each month so that I could increase the number of stocks from around 10 to around 20.  But I changed my mind.  I wish to stick (for the moment) one stock from each sector and from now on keep the cash balance as it is.   I want to monitor how this portfolio will perform over the next few years with just the cash it has now.   My rebalancing will only now be every 12 months

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Valuation Charts
So my gain has been calculated from the graph below.

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Sector Analysis Pie Chart

The pie chart has shown that I am currently over weighted in consumer cyclicals at 32% compared to most other sectors around 11%.  I have no stocks in Financials due to selling out of Plus500 (LON:PLUS) At the time of inception no telecoms or utilities stocks qualified.

154ilqf.jpg

Sector Weights vs. Market

The bar chart clearly displays my over weighted Consumer Cyclicals compared to the other sectors and the market averages.  Consumer Cyclicals will be the sector where my focus of rebalancing will be

jg5o9l.png

Position Weights vs Limits

All stocks are within my limits with Empresaria (LON:EMR) close at 13.9%.  I also have cash at 4.9% that will be invested when I rebalance

73jot2.png

Conclusion

I am absolutely delighted on how well this portfolio has performed in the last 12 months.   Based on StockRanks this portfolio has grown with the minimum of fuss.   During the year this portfolio has had one 'bad egg' Plus500 (LON:PLUS) and has also ridden the waves of so called 'black Monday'.

If I have to do some comparison with an index then I guess  the FTSE All-Share will do as a quick an easy way to do a valuation.   According to the chart the FTSE All-Share had started around 3500 points and is currently around this level 12 months later, after achieving a high of around 3825 point.   My StockRanks portfolio has not only held up well during the turbulent last quarter, but also outperformed the FTSE All-Share as a whole.

Finally I wanted to mention the StockRanks subscription.   At the time of inception I was subscribed to the UK/USA service.   I paid £450 for a one year subscription. 

The performance of the StockRanks Portfolio has easily paid for the Stockopedia Subscription.   Tesoro was my only stock in the portfolio that was not London Listed, therefore if I stayed with UK subscription only then the annual fee of £200 is a pretty negligible cost, paid for many time over, thanks to the Stockopedia StockRanks portfolio performance.

I would like to thank Stockopedia for proving tools like the StockRanks for an easy system of investing that does work well on a portfolio view point, and the benefits outweigh considerably the subscription costs.   [2]

In part 2 I shall provide a post on my rebalancing.

[1] NWT Has a market cap of around 13m.  I just added in the Market Cap > £20m to promote liquidity shortly after inception of the portfolio.

[2] Due to my broker Halifax unable to offer the wide range of US stocks that qualify for the screener I shall be downgrading to UK only subscription and selling TSO, my only US stock.  This is no concern since the performance of UK only stocks has still out performed.  Of course diversifying across many exchanges world wide helps to diversify. 


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. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. 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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22 Posts on this Thread show/hide all

Attraction Investor 22nd Oct '15 3 of 22
1

Excellent post and great results. It makes me think my frequency of trading is being destructive to returns.....

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JoeRussell 22nd Oct '15 4 of 22
1

Thanks for sharing, Grindertrader. Great performance.

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lucien2k 22nd Oct '15 5 of 22
1

Very impressive results, how did you pick if you had multiple stocks that qualified in a sector? Highest? Research?

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charlene 22nd Oct '15 6 of 22
1

Great post can't wait for part two thanks for sharing.

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Edward Croft 22nd Oct '15 7 of 22
13

Kudos Grindertrader. 38% in 12 months is quite stunning. The StockRanks have done brilliantly in the UK over the last few years. I have been using the StockRanks 100% for my own portfolio this year and have managed a similar level of return.  But it's always important to mind the downside - the future might not be so kind !

I don't want to pour cold water on this, but I feel it's my duty to highlight a few risks. 

  1. Market Regime Change - it could be that the factors we're targeting in the StockRanks have benefited strongly in this cyclical environment and may fall out of fashion.   Of course by targeting Value & Momentum the system covers both mean-reversion and trend environments, so it should be better placed than a pure Value or pure Momentum system (which often go out of favour for long periods)... but you never know what may lie around the corner.  
  2. Crowding - Factor investing has become popular.  It could be the StockRanks have ridden the institutional wave of money that's flowing into these kinds of strategies in Smart Beta products. When ever anything becomes vogue, there can be crowding in the underlying shares. There's some evidence that 'quality' stocks are becoming expensive compared with history... so perhaps future returns could be lower. 
  3. Reversals - there's a higher proportion of small caps amongst the top ranking set of stocks and they tend to get hit a bit harder in reversals.  Momentum stocks often correct a bit harder than the overall market too.  So when markets decline, sharp sell offs may hit high StockRank stocks more heavily.  We saw this in August, but they recovered quickly.  A more sustained decline in markets could see a more exaggerated fall in high StockRank stocks.

Playing a sound defence is super important !

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Grindertrader 22nd Oct '15 8 of 22

In reply to post #108837

I bought two and sold two during that time.

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Grindertrader 22nd Oct '15 9 of 22
1

In reply to post #108834

Thanks again Aston for the nice reply. Having a look at the rebalancing am thinking the difficult part is underway.

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Grindertrader 22nd Oct '15 10 of 22

In reply to post #108843

Yes its hard to do 'nothing' but I am glad I decided not to rebalance every quarter, or even six months. Of course I may intervene should a stock become negatively impacted before the next 12 months is out.

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Grindertrader 22nd Oct '15 11 of 22

In reply to post #108849

Thanks Lucien. I look at ranks 90 and above of each sector than look to see what I think may give me the best returns on simple metrics that I understand.. increasing revenue, profits earnings etc. I'll check the outlook is positive and finally check there is nothing suspect.

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Grindertrader 22nd Oct '15 12 of 22
1

In reply to post #108861

Yes agreed and it's important for me not to become over confident on my approach. I am still not 100% confident in my exit strategy and I do need some defensive rules. Maybe I should sell simply on the fact they do not qualify for the screener on rebalancing day. It's something that I will consider during the next couple weeks

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mpat89 25th Oct '15 13 of 22

It seems as though you only have 10 stocks. Presumably your stellar returns are somewhat attributable to this fact, what are your thoughts? How about going forward, are you concerned you could have any underperformance?

How do you think performance would have changed if you were holding 20-30 stocks instead of 10?

Professional Services: Web hosting
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pka 25th Oct '15 14 of 22

mpat89 wrote: "It seems as though you only have 10 stocks. Presumably your stellar returns are somewhat attributable to this fact"

I think there are two factors at work here. One is that having just 10 stocks allowed Grindertrader to select the most attractive stocks, based on his criteria, so that may have improved the performance of his portfolio. The other factor is that 10 stocks is a relatively small number, which would increase the variability of returns of the portfolio, so part of the 'stellar returns' may have been merely due to good luck in having selected 10 stocks that on average performed very well over the past year.

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pka 26th Oct '15 15 of 22
2

On reading my last post, I realise that it could be misinterpreted as seeming churlish, which was not my intention. Congratulations to Grindertrader on the great performance of his portfolio last year. I was just trying to point out that with a portfolio containing 10 stocks, which is a small number for a portfolio, there is likely to be considerable variability in its performance relative to the market index from one year to the next, so a good performance in a single year might partly be due to luck and it is difficult to draw valid conclusions from it.

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CMWilliamson 26th Oct '15 16 of 22
1

In reply to post #109251

There many arguments for and against having a small/large number of stocks in a portfolio. It brings to mind another of Warren Buffett's inimitable quotations:

"If you have a harem of 40 women, you never get to know any of them very well."

His business focus approach seems to have worked well for him, taking big stakes in businesses he is confident about. Not that he's infallible (Tesco ...), but his average is very good. OTOH, I guess he epitomises a hunting approach and @grindertrader is a farmer. So I just countered my own argument!

Colin

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Grindertrader 26th Oct '15 17 of 22

Hi pka, you are probably correct. It has been reported by Stockopedia crew that 10 stocks is never enough. But while I take a full portfolio view on the performance, there was some 'stock picking' involved. I agree that while the portfolio has done extremely well this year, then as a concentrated portfolio the performance may yield very different and opposite results the next.

I have been looking at rebalancing and it looks as though I have far few to chose from compared to last year. It seems indeed quality stocks are rated quite high, so I am not so confident myself.

I hope to declare the rebalancing in another post this week, and then see how the portfolio gets on.

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pka 28th Oct '15 18 of 22
3

Hi Grindertrader, you wrote:

"I have been looking at rebalancing and it looks as though I have far few to chose from compared to last year. It seems indeed quality stocks are rated quite high"

With respect, if you have far fewer stocks to choose from compared to last year, I don't think that is due to quality stocks being rated higher than last year. This is because the way the Stockopedia Ranks are calculated means there is the same number of stocks in each decile (e.g. 0-9, 10-19, etc) of each Rank from one time to another, irrespective of how the overall market has performed (assuming that the total number of stocks in the market is roughly constant). But your selection criteria mean that you only consider stocks that have Quality Rank > 66, Value Rank > 66 and Momentum Rank > 66, and the number of stocks that satisfy all 3 of those independent criteria might vary over time, just due to luck. If instead, you had used the single criterion that StockRank > 66, then I would have expected the number of stocks that satisfied that criterion to be much less variable over time. I'm not criticising your criteria, I'm just trying to explain why the number of stocks that satisfy them are likely to vary from year to year due to luck.

However, I'm not sure that your criteria are likely to improve the average performance of your portfolio over the long run (although they might do so), because I understand that you select your stocks from the list of stocks that satisfy your criteria in the order of decreasing StockRank, and the StockRank itself already combines the Quality, Value and Momentum Ranks in a single rank. But what your criteria do achieve is to ensure that all the stocks in your portfolio are well-balanced between the Quality, Value and Momentum Ranks, rather than some stocks possibly having a very high score in one of those Ranks and mediocre scores in the other two, which may, or may not, be a good thing for performance over the long-term. Your portfolio certainly performed very well last year, but there were only 10 stocks in your portfolio and one year is a short period in the stock market, so I don't think it is possible to draw any statistically valid conclusions from that.

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Grindertrader 28th Oct '15 19 of 22
3

In reply to post #109866

pka,

It is abvious from my screeners that their are less stocks to choose from. I have noticed that many still retain quality > 66, however they dropped off due to high momentum, increased priced action causing the Value Rank to go below 66.

Good quality Stocks have become more expensive in general. This has nothing to do with luck at all. Stocks have had an excellent run during the past few years (and last 12 months in general) and are more expensive.

I have noticed this not only in using the stock ranks screeners but also in my normal day to day stock picking research


I have also never claimed my Stock Rank portfolio rules are a long term successful strategy at all!  I am aware of the risks of a concentrated 10 stock portfolio.  I have also mentioned previously that it is too short a time scale to judge the success of this portfolio.

I will however happily accept the magnificent performance to day.

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pka 28th Oct '15 20 of 22

Grindertrader, I agree it has been magnificent performance so far.

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pka 28th Oct '15 21 of 22
1

Grindertrader,

I hope you don't think my comments are criticisms. I think your posts sharing your experience of running your own real-money portfolio are excellent. I have been following a somewhat similar approach to you, but the performance of my portfolio has not been as outstanding as yours, although it still comfortably beat the FTSE All Share Index last year. My comments have been intended to help me, you and others figure out whether your excellent performance last year was due to the particular criteria you followed or was partly due to luck. So please take my comments in the spirit they were meant, which is as compliments rather than criticisms!

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Grindertrader 28th Oct '15 22 of 22

In reply to post #109965

Oh pka, please I didn't take your comments the wrong way at all. I am not sure at all if my criteria works for the long term, or if it is in fact luck so far. I have agreed with you on a few points.

On the quality/expensive comments that cool if we think differently. I certainly welcome your and others comments. Sometimes and maybe the way I type may come across as defensive arguments, but that is not my attention.

I think it would take a few years to decide if it works for the long term and to build confidence before I could consider putting 100% of my portfolio into this strategy

So thanks for your points and good luck with your own strategy too.

regards
Ian

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