Replicate 90+SR with zero cost trading plans?

11th Aug '20 by Roodini

33 comments 1143 reads

Evening all,

Having discovered Stockopedia 6 months ago, I’ve been devouring the blogs and unbelievably excellent system.

The chart showing the performance of a SR90+ portfolio is like discovering Alchemy.

The main issue for me is replicating the SR90+ performance while reducing the risk of filtering out the random winners.

The issue is number of shares vs trading costs.

Apologies if this has been discussed elsewhere, but my question to the group wisdom is, if companies such as ii.co.uk offer free trading costs, why not simply purchase the whole list?

For £29 a month, which I was told you can turn on/off, allows low cost trades.

Their “regular investing” option is £0 per trade.

I had been playing around with parameter after parameter to thin out the 90+SR lists or QM lists but as has been discussed on these forums, whatever you filter out, you could (negatively) affect the average result.

I’d much rather be a passive investor and have already 75% of my portfolio in these passive funds. vanguard built a vast empire based on it for a reason. It works

If the 90+ SR raises the average return when compared to passive funds then why try to pick/filter them out (of course unless this is of interest to you).
It’s simply like counting cards at the casino, you stack the deck in your favour.

Any reasons why a zero cost trading plan can’t just buy all the SR,+90 shares?

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unwise2

12th Aug '20

Running a SR90+ tracker is a great idea in theory but in the real world you will never match the performance shown on the Ranks Performance page. The 135% gain since April 13 requires buying £10m+ Mcap companies and rebalancing quarterly. I make that 29 rebalances. Run a screener for SR90+ and Mcap £10m+ and check out the bid/offer spread of the bottom 20. Some of them are over 10%. Now imagine having to cross that type of spread on some of your holdings 29 times.

I suspect in the real world a portfolio of £50m+ rebalanced annually would probably outperform after costs.

Mike888

you are quite right pka, I have excluded spread, which would be material on smaller caps, TBH I think Eds NAPS approach would make more sense than holding the lot.

Terry Dickens

Hi Stefan

If you talk to Ed (with all his money) to set up an ETF 90SR Tracker. Then I would definitely invest. Sounds good to me.

Roodini

Yes I’ve also run the screener to reduce the list excluding b/o spread to below 5% and 3%.

In the real world (my world) a smaller portfolio would of course be better.

how did you come to the £50m figure?

Terry,

That’s my point. It can’t be that hard for someone with a few million to set up an investment trust.
Just curious why no one has created their own version of this “tracker” I know our host Ed, is not a fan of trackers as such, but in a way the NAPs and SR90 are “active” trackers.

Nick Ray

Do XDEM and XDEQ do what you want? They look pretty close from a quick look.

Billfunk1

Good question, Stefan. Why wouldn't Stocko do this either on their own or as a tie-in with a big fund provider? It would appear to be a match made in heaven.

hi Nick,

I read a lot of your comments from a few years back on the NAPs articles. Very informative.

I had a quick look at the XDEM momentum etf. It said it’s 5 yr return was 11.7%. Not quite what the NAPs or SR90 did.

I was just reading your comment from oct 2014 about your portfolio!

https://www.stockopedia.com/co...

How did that work out?

That comment tied in perfectly with this comment about eliminating certain bid/offer spreads.

mike,

This spreadsheet is in one of the stockopedia articles from 2013. For calculating trading costs.

https://docs.google.com/spread...

For XDEM I make the five-year return 3327/1477 = 2.25 so +125% or 19% p.a.

Looking on the Stock Rank performance page, the 90-100 decile over five years is +50% or 8% p.a.

NAPS performance over five years is roughly +100% or +15% p.a.

pka

13th Aug '20

Hi Bugsy9049, I did use the approach described in my comment from Oct 2014:

https://www.stockopedia.com/content/how-many-stocks-should-you-own-in-your-portfolio-86323/?comment=15#15

for a few months in my real SIPP portfolio. But I lost patience with it and decided it wasn't for me. It required a high (for me) turnover of stocks in my portfolio, and as I keep records of all the holdings in my family's portfolios in various places (in spreadsheets, online tools, etc) that was a lot of ongoing administrative effort. Also I like to have a geographic spread of my investments, whereas the approach described in my comment was for large UK stocks only. And I decided I don't like the volatility that comes with owning a portfolio of 20 or so individual company stocks.

So now my portfolios mainly consist of investment trusts that have investments around the world as well as in the UK. I use an approach to selecting them which combines share price momentum (using the %200 day moving average) with value (in the form of large discounts or small premiums to Net Asset Value) and which avoids selecting investment trusts with large bid-offer spreads. I'm not suggesting that this approach performs better than a high StockRanks or NAPs approach, but it suits me better at present.

at the moment your current approach is similar to where I am now. Over the years flip flopped from individual stocks back to trusts again.

I never had the time or skill to fully research individual companies fully. Ironically I came across Stockopedia after searching for a system to track portfolios with regard to % returns and calculating CGT. Spreadsheets were just getting to complicated and cumbersome across the family account.

I trailed out Stockopedia just for the portfolios system, but it didn’t make the cut for the reporting but other than that I think as a research tool it’s amazing. The blog/writing is also top quality.

Sharepads reporting system is excellent but the graphic and layout is horrible and not intuitive.

Ed, What's your thoughts on setting up such an SR90 tracker, it would be very interesting to hear them.

Thanks. I checked again and from bloomberg.com, it came out at about 100% over 5 years. Still good though. Q for you, why then use NAPs vs XDEM?

According to the Stockranks performance page the overall performance drops if you exclude less than £350m/£100m/£50m companies. I thought £50m minimum was probably a good balance between possible gains vs likely bid/offer spread

14th Aug '20

Hi Nick,

Thanks for mentioning the very interesting XDEM and XDEQ ETFs.

However, I think comparing XDEM's performance with that of NAPS a bit like comparing apples with oranges. XDEM invests worldwide, with at present 71% in the US stock market, whereas NAPS invests solely in the UK stock market.

I think it would be more relevant to compare the performances of XDEM and XDEQ with that of a standard worldwide tracker fund or ETF.

The broader point is that there are already a lot of ETFs available if you want to find an ETF to replicate the NAPS approach (including multifactor ETFs).

Edward Croft

We've considered it. Have talked to ETF providers in the past about this. Reality is that to make an ETF commercial we'd need to raise a lot of money. You can get a UCITS fund to wash its face at £10-20m or so under management, but to do an ETF you need £100m or more - otherwise it has to be an ETN (which is a loan note from an investment services provider and not a genuine security).

Running £100m - at a 0.5% net fee to the investment manager (Stocko) - the revenues are likely to be £500k. Not to be sniffed at of course, but there would be a business imperative to drive up AUM to make the fund commercial. And that's where the issues really start.

Even running £100m - if you want a concentrated portfolio of (say) 50 stocks, you need to build a book of £2m in each of the stocks that you own. The liquidity required to run such large size pushes the fund's position requirements up the market cap scale. i.e. it knocks you out of a lot of small cap opportunities - which is where a lot of the enjoyment is as a private investor.

If you run your own portfolio - and (say) have £100k to manage, you can buy £5k in each of 20 stocks. You can trade almost all the shares in the market with minimal market impact. Given the returns to microcap high StockRank shares have been so strong, it's actually a much better outcome for long term investors to do the work themselves, rather than stick it in a fund that tries to do the same but can't due to scale.

I certainly wouldn't rule the idea of us launching a StockRanks fund at some point, but I do think it would be midcap and large cap focused.

On the other hand, running a discretionary closed end fund that's smaller with significant personal capital involved is quite an attractive proposition. I'm v. focused on the Stockopedia platform at the moment, so this is something for a later date!

jonkingston

15th Aug '20

How come you invest in stocks via a corporation, and not a sipp or isa?

Replicate 90+SR with zero cost trading plans?

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Roodini

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