Stockopedia’s 66 guru inspired portfolios have produced a few surprises over the past three months but those that focus on strong growth and quality remain the best performers. Even so, there is evidence of a ‘dash to trash’, with market exuberance driving up the prices of low quality shares. If sentiment changes, these stocks could feel the pain first so investors need to be vigilant for both red flags and opportunities as they arise.
Long-only strategies - as measured by the Stockopedia All Cap Composite index - managed a 7.0% return in the months since the last rebalancing on 16 December 2013. In that time the FTSE 100 rose by 2.7%, the FTSE All Share was up 3.2%, the FTSE SmallCap XIT was up 8.2% and the AIM All Share was up 8.8%.
In last year’s annual strategy review (here) we mentioned that screens looking for growth at a reasonable price - or GARP - had performed exceptionally well. That continued in Q1 with the aptly named classic GARP strategy producing a 17.6% return. It was helped by shares like S&U (LON:SUS) (up 20.9%) and Pennant International (LON:PEN) (up 30.7%).
But GARP was bettered during the quarter by growth screens that are less concerned with price. The Charles Kirkpatrick and Bill O’Neill CAN-SLIM strategies delivered 23.0% and 20.1% returns respectively, despite little overlap between their portfolios. One particularly strong shared stock was trading technology company Plus500 (LON:PLUS), which notched up a 78.5% gain. As Small Cap expert Paul Scott has noted, glamour stocks have been flying of late. Could this price insensitivity in the market be the canary in the goldmine, or part of a more secular shift?
Short selling suffers
Perhaps the most alarming (and revealing) finding from the first quarter was the performance of low quality, junk stocks: the kind typically found in Stockopedia short selling strategies. During two years of tracking, the short screens have generally done what they set out to do, which is to underperform the market. Most still boast a long-term record of underperformance but in Q1 some achieved startling positive returns.
Stockopedia’s short screens are each based on models that look for accounting…
