SIC Performance Review: Outperforming In A Trickier Market

9th Jul '21 by Jack Brumby

34 comments 8752 reads

Back in February 2020 we set up the Stockopedia Investment Club as an office initiative that we could also share with the wider community. As you can imagine, coinciding with a global pandemic means it has been quite the ride so far.

In this short time, we've enjoyed the euphoric highs of multibagging success, the boredom of watching stocks do nothing (the phrase don't just do something, sit there! comes to mind), and the plummeting lows of profit warnings.

You can find the first review here. Happily, we continue to outperform our All Share benchmark but the gap has narrowed in the first half of 2021. However in Ed's SNAPS piece, he shows that the purely mechanical factor-based Folio was up some 31% in the first half.

So even though we're beating the market, there's room for improvement.

Portfolio performance

A blockbuster 2020 saw encouraging outperformance for the Club. The first half of 2021 has been slightly tougher going but we continue to outperform the All Share benchmark.

The Club returned 15.45% in the first half of 2021, compared to 10.68% from the benchmark.

That's a creditable result given what feels like slightly more mixed markets recently - the rally continues, but at a much reduced pace.

More meaningfully, the Club Portfolio is up 55.8% on a cash-adjusted basis since inception (February 2020), compared to an All-Share return of -2.02% over the same period.

Changing markets

In the aftermath of the initial lockdowns, it felt like riskier more speculative stocks were in the ascendancy. This is quite clear in Stockopedia's own Quality Ranks.

You don't see this kind of inverted chart too often, but here's how stocks have performed over the past year by Q Rank decile.

What's interesting is when you hone in on the most recent three month period. It's starkly different to the previous trend and suggests a return to more 'normal' conditions.

Performance drivers

Here are the winners and losers of the Folio - due to time constraints I haven't included dividends and have assumed equal weightings. It does show a positive win:loss ratio of 1.25x, but one that can be improved.

Including the dividend we've received from IG would bring that position into positive territory, which would make for a ratio of 1.57x. It…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Norfolk'n'Good

11th Jul '21

As ever wise words Tim, particularly that last point. I always feel I learn something from your commentary - please keep it coming!

DWit199

"Again, we're keen to get views on this thorny issue - how do you decide when to sell?"

My solution to this aspect of portfolio management is to convert Stockopedia ranks into a numerical forecast for each share in my investment universe . The forecast value roughly approximates to the expected percentage return over the next year relative to the FT All Share index.

QM rank has historically been the Stocko rank that has provided the greatest separation of wheat from chaff so my forecasts are based on QM rank combined with mkt cap, annual volatility and forecast yield. The resulting forecast applies to existing holdings. The published bid offer spread is deducted from this forecast to give the forecast for a new holding.

If the forecast of an existing holding falls below a threshold, currently 5%, then a replacement new holding with a higher forecast is sought from the same sector. A check for "broken legs" is applied before any share is purchased. I have limits on the number of shares in the same industry group to force diversification .

The portfolio generated by this selection process is highly diversified and tilted towards high quality, high momentum, smaller market cap, low volatility, value (yield) and low bid offer spread. These are all factors with some academic support.

Based upon the rates of regression to the mean of my forecasts and the published bid offer spreads of companies in my investment universe, I predict an optimal average holding time of between one and two years, although in my models the penalty for holding longer is less severe than for trading too often. With a 25 share portfolio I would expect to trade about once a month after the portfolio has become established.

timarr

That's very kind of you. I think the last point could be generalised to "always look for ways to get feedback on your decisions". Otherwise we only learn very slowly from our mistakes.

It's all behavioural psychology really - The Little Book of Behavioral Investing by James Montier is probably the best read on the topic. It's only 130 odd pages, for about the price of a single trade.

Ochonu2015

When a stock gains astronomically 500 % for e.g do you keep it or sell it and keep your profits. I have had a few I wish I had known experiences….APPN; Moxian..

Kalama

I’m an amateur investor, not a gambler, nor a professional analyst - so my absolute focus is on ‘rate of return’ and not on ‘big wins’ or ‘long-term sustainability’….

The dynamic that entraps gamblers is that ‘wins’ are very sticky - so they naturally want to do ‘more of the same’ in order to secure some exciting, self-validating ‘big wins’.

Focussing on ‘rate of return’ in the current climate of share volatility, economic volatility and ‘lack of sustainable market direction’ necessitates [for me] having clear performance [buy/sell] benchmarks and forgoing the chance of ‘big wins’ [aka the chance of big losses!].

My basic benchmark for selling is to sell when a holding has reached a return rate of 1% per week [including dividends]- which could, as an extreme example, mean selling a holding that has yielded a mere 0.5% in 3 days – unless, of course, I am pretty sure that this rate of return is likely to be maintained!

A 0.5% return seems pretty trivial, but ‘over 3 days’ compounds to well over 50% per annum, and that money can be immediately recycled into the next ‘buy’ that has a 1% return/week prospect.

When the weeks since a purchase roll into months - without my initial benchmark being achieved – I apply my second level benchmark, which is selling when the rate of return reaches 1% per month [including dividends] – still a ‘pretty fair’ compounded rate of annual return!

After 6 months or so, some purchases will not have achieved either benchmark and they must be evaluated in terms of their prospective future returns, in combination with considering alternative investments. It is at this point, that my ‘due diligence’ at the time of purchase crucially comes into play, so that if I have to sell, the ‘rate of loss’ [since purchase] is kept as low as possible!...

…In current market conditions my investment style is mainly contrarian [‘buy on the dip’] so that the ‘downside’ potential trends towards less significance than the ‘upside’. This is combined with avoiding any shares with less than 1.5% yield, plus avoiding any company that has significant debt.

Lincoln Green

12th Jul '21

Hello Jack, I would have thought that in a club it would be down to a vote of the members. Only the vote this time would be : Buy (would you still by them now) or Hold or Sell. If you are able to do this on a fairly regular basis for each holding, you would be able to have them in some sort of league order.

Bottom 3 holdings. Buy Hold Sell 14th 0 6 4 ( Sell 4 Hold 6 ) 15th 1 4 5 ( Sell 4 Hold 4 ) ( Sell 5 minus 1 Buy = 4 ) 16th 0 5 5 ( Sell 5 Hold 5 )

Jack Brumby

13th Jul '21

Hi Kifran,

One thing to bear in mind with the Club is we have a 'fundamental stop loss' based on the StockRank - if a stock ever drops below a StockRank of 50, we have it in the Club rules to sell. That happened earlier in the year, around April/May if I recall correctly, so the position was sold.

Hi welwichia,

No, you're not missing something.

To construct the chart in Performance Drivers, I noted the Club's transaction data on the stocks in the Folio, and then calculated the gain/loss + generated the chart in Google Sheets. A little time consuming but an instructive exercise.

It's the kind of update we'd love to bring into the Stocko Folios at some point and we've got it as a longer term possibility but for now it's not scheduled.

WarrantStar

For selling, you could take into account Relative Strength over a suitable period, eg 1 month. If the number is quite negative, then it is telling you that your money might be better invested elsewhere. One way to approach this could be to regularly examine (with a view to selling) the shares with the worst relative strength. When conducting the analysis, be open minded, and also look for any imminent factors that you think might reverse the recent decline.

I sent that table through in neat order! I was not drunk! You have to read along the lines now. Each line beginning with 14th, 15th & 16th place.

Ritchie

18th Jul '21

Hi Jack, the 5th highest gain in the Folio is Ferrexpo FXPO.

Won’t this announcement lead you to sell ?

“KYIV, July 15 - Ukraine's state bureau of
investigation DBR said on Thursday that Kostyantin Zhevago,
ultimately the controlling shareholder of London-listed iron
pellet producer Ferrexpo FXPO.L , had been put on an
international wanted list.”

CamRaid

20th Jul '21

So let's assume you stick with the same portfolio and some shares constantly outstrip others in terms of performance.

This would result in a concentrated portfolio with the concentration being in the top performing shares.

Would you rebalance the portfolio to improve the diversification or would you back the winners and stay invested in a concentrated manner?

Richstead

27th Jul '21

I tend to agree, but nothing goes up forever and once a share reaches an excessive PE then, however good the company best to sell some and put the cash aside while deciding what to do with it.

Anthony127

I don't know about the SIC; but I sold Ferrexpo (LON:FXPO) about ten minutes after reading the announcement. I think you need to have confidence in the integrity of the Board of Directors especially in a controlling shareholder.

I too would be interested to know whether the SIC will take this into account or are they purely driven by the figures.

BarrieLomas

2nd Aug '21

Pattern of Rate of Rate of Change overs a clue

Differential Calculus was the bane of my life in the sixth form until I started to learn to drive when rate of change and rate of rate of change became speed and acceleration. I present an exercise using the Investment club shares to show changing rates of share prices percentage change over the first two quarters of this year to date. to show a simple example of how this can work

Qtr 1 is closing price 31/12/2020 difference to closing price 31/03/2021

Qtr 2 is closing price 31/03/2020 difference to closing price 30/06/2021

YTD is closing price 31/12/2020 to closing price 31/07/2021

EPIC	QTR1	QTR2	YTD
RCH	50%	28%	168%
FXPO	33%	14%	70%
SLP	29%	7%	22%
SAFE	2%	19%	35%
BME	2%	9%	7%
WATR	20%	42%	125%
G4M	2%	21%	18%
ERGO	14%	-2%	17%
CCC	-3%	9%	11%
BWNG	9%	-13%	-17%
IGG	5%	-6%	3%
TND	17%	-9%	9%
TRMR	79%	2%	101%
CDM	-8%	0%	-8%
THS	9%	-7%	-7%
VLG	-7%	5%	-4%
FNX	24%	-14%	-10%
NCYT	-16%	-55%	-62%

example

TRMR was fast off the starting line then slowed in Q2 but is still third YTD

Whilst RCH and WATR have provided a steadier rate of rate of change

Being new to posting here I missed the Key Table and simple an Analysis on the post below

The first table just had rate of increase. But difference between two equal 60 day trading periods with probably a key event RNS included can give a guide to future direction. TRMR suggest that this should be read in line with other data. Sorted by a simple Rate of Rate of Change order

EPIC	QTR1	QTR2	QTR2-Qtr1	Note
WATR	20%	42%	22%	Accelerating
G4M	2%	21%	19%	Accelerating
SAFE	2%	19%	17%	Accelerating
VLG	-7%	5%	12%	Up Turn
CCC	-3%	9%	12%	Up Turn
CDM	-8%	0%	8%	Up Turn
BME	2%	9%	6%	Up Turn
IGG	5%	-6%	-11%	Decelerating
ERGO	14%	-2%	-16%	Decelerating
THS	9%	-7%	-16%	Decelerating
FXPO	33%	14%	-18%	Down Turn
BWNG	9%	-13%	-22%	Down Turn
RCH	50%	28%	-22%	Down Turn
SLP	29%	7%	-23%	Down Turn
TND	17%	-9%	-27%	Down Turn
FNX	24%	-14%	-39%	Down Turn
NCYT	-16%	-55%	-40%	Down Turn
TRMR	79%	2%	-77%	SPECIAL CASE

Rusty2

1st Sep '21

Not the best timed trade Ergomed (LON:ERGO) is now up around 30% since the decision, not sure why, can't see any news.

tony roberts

20th Oct '21

I always feel I've learned a little bit more after reading your informative comments. I was wondering if you ever posted on Twitter

10th Dec '21

Are they any planned updates on this portfolio? There has been considerable changes since the last update in July.

Is it not possible for Stockopedia to publish a folio of the holdings, similar to fantasy folio that were on the old site, with all the trades and profit/losses?

SIC Performance Review: outperforming in a trickier market

Portfolio performance

Changing markets

Performance drivers

Unlock the rest of this article with a 14 day trial

About the Author

Jack Brumby

34 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...