SIF Folio Q1 2024 review: after 8 years, does the system still work?

I created the SIF model portfolio in April 2016, almost eight years ago. Since then, managing this rules-based virtual portfolio has become a regular part of my weekly investing and writing process.

Throughout this period, Stockopedia has kindly allowed me to continue documenting the progress of this portfolio for subscribers.

While the returns generated by this strategy have been unspectacular by the standards of US tech stocks (or indeed those of many accomplished private investors), SIF has beaten the UK market by a decent margin and created enough value to keep me investing some of my own cash alongside the virtual portfolio documented here.

As the markets adjust to the new normal of higher interest rates, I’m keen to see if my rules-based system can continue to generate acceptable returns.

A cautious start to the year

The first quarter of 2024 was modestly positive for UK equity markets. Only the much-unloved AIM All-Share index has failed to make any progress so far this year:

While expectations for interest rate cuts have been pushed back somewhat, I think there’s a general consensus that rates have peaked and inflation is more or less under control.

Heading into this year, I was cautiously optimistic about the opportunities in 2024. Let’s see how things have panned out so far.

SIF Q1 2024 performance review

The stocks I add to the SIF portfolio are selected from a stock-buying screen and then subjected to a limited additional analysis. This is done to ensure a basic level of diversification and to avoid stocks I view as outliers or special situations.

(In a recent academy article, I wrote about screening and the benefits it can provide)

My SIF screening rules are designed to identify affordable, profitable and growing companies. Broadly speaking, this is a GARP approach, with an emphasis on value and momentum.

I review the screen results weekly and add one stock each week when suitable choices are available, although this isn’t always the case. For example, I added six new stocks in Q1, which I would say is fairly average.

The portfolio’s default holding period is nine months, after which each stock must continue to pass additional screening tests in order to remain in the portfolio. The oldest position in SIF at the time of writing is Galliford Try Holdings (LON:GFRD), which has been held since April 2023.

Performance: the value of the SIF portfolio rose by just under 6% during the first quarter, compared to 2% for the FTSE All-Share. These figures exclude dividends but include estimated costs:

Taking a broader view, here’s how the portfolio has performed since its inception in April 2016:

SIF’s performance since inception translates into an annualised return of 8.1% since April 2016, including estimated costs but excluding dividends.

The FTSE All-Share index rose by 2.7% annualised over the same period.

Including dividends, my records suggest that SIF has delivered an annualised total return of 10.1% per year since April 2016.

As far as I can see, the FTSE All-Share Total Return index has delivered an annualised total return of 6.8% over the same period.

SIF portfolio review

I added six new shares to SIF during the first quarter and sold four stocks, leaving me with 15 holdings. This number of trades means the portfolio has changed significantly since the end of 2023.

Here’s a snapshot of how the SIF folio looks at the time of writing:

(SIF folio positions on 05/04/2024)

Here’s a summary of SIF stock trades over the last three months.

Stocks sold in Q1

It’s probably worth reiterating that I sell shares in accordance with my rules, rather than by making a personal judgement.

In general, sales are triggered when a stock no longer passes all of my screening tests after nine months. Sales are also triggered by profit warnings or if a share falls by more than c.25% below its original purchase price.

Pagegroup (LON:PAGE) 

I added this FTSE 250 recruitment group to SIF in December 2023 but my rules forced me to sell after Page issued a profit warning in January.

I rate this business quite highly and I don’t think the warning is anything to worry about. But the near-term outlook is uncertain and the timing of a recovery unclear.

I covered PageGroup in a 2023 Stock Pitch here.

Bought PAGE: 488p on 27 Dec 23

Sold PAGE: 450p on 16 Jan 2024 (profit warning)

Total return (inc. dividends): -8.3%

Kitwave (LON:KITW)  

This small-cap wholesaler is another business I personally view quite favourably. I sold ahead of the FY23 results when slowing earnings growth forecasts meant the stock failed my PEG ratio test.

However, Kitwave still seems to be executing well on its buy-and-build model, and I’ve missed a subsequent rally.

I covered Kitwave in a 2023 Stock Pitch here.

Bought KITW: 268p on 2 May 23

Sold KITW: 293p on 27 Feb 24

Total return (inc. dividends): 10.7%

Property Franchise (LON:TPFG) 

This estate agency franchising group is in the process of merging with rival Belvoir. I have a favourable impression of both businesses, but again, slowing growth forecasts meant TPFG failed my PEG ratio test at its nine-month review.

The shares look fairly priced to me now, but I would expect a return to stronger growth when market conditions improve.

Bought TPFG: 307.5p on 30 May 23

Sold TPFG: 355p on 27 Feb 24

Total return (inc. dividends): 17.6%

Bloomsbury Publishing (LON:BMY)

If I’m honest, this publisher has exceeded my expectations. Prolific ‘romantasy’ author Sarah J. Maas looks like she may provide the blockbuster sales Bloomsbury needs to regain the momentum of the Harry Potter boom years.

Even so, Bloomsbury failed my forecast sales growth and PEG ratio tests at its nine-month review.

What’s interesting is that the shares failed these tests because broker earnings upgrades for the current year haven’t been pushed forward into the FY25 financial year. At least, not yet. I’d expect the company to provide updated FY25 guidance with its full-year results in May. For now, I'm neutral.

Bought BMY: 420p on 6 Jun 23

Sold BMY: 540p on 26 Mar 24

Total return (inc. dividends): 31.4%

New stocks

I added the following shares to SIF during the first quarter of 2024.

easyJet (LON:EZJ) 

The airline sector is having its day in the sun and easyJet appears to be performing fairly well.

A trading update is due later in April which may provide an update on the outlook for the key summer trading period. My main concern is that I may be too late to the party.

I added easyJet to SIF on 2 Jan 2024 at 503p.

Atalaya Mining (LON:ATYM)

I don’t know very much about this £500m Spanish copper miner, except that it appears to have an unusually strong balance sheet and a very reasonable valuation.

Recent results suggest the firm’s main projects are making progress. Lower energy prices in Europe could provide a useful tailwind this year.

A big step up in production and earnings is expected in 2025, according to broker forecasts. If Atalaya can deliver on these numbers, I think the shares might still be cheap at current levels.

I added Atalaya Mining to SIF on 9 Jan 2024 at 339p.

GSK (LON:GSK) 

I added this FTSE 100 pharmaceutical group to SIF shortly after its 2023 results were published. While the long-term growth outlook for pharma stocks is always a mystery to me, the performance of GSK’s pipeline of new products does seem to be improving.

Debt levels have come down and the shares look reasonably valued to me at current levels, especially now that the risk of an adverse outcome from Zantac litigation appears to have receded.

I added GSK to SIF on 13 Feb 2024 at 1,642p.

Hunting (LON:HTG)

This oil and gas drilling equipment specialist has profited from increased activity in the energy sector, but is also starting to diversify into non-fossil fuel markets. Despite recent gains, the shares are still trading below book value and on a low P/E multiple.

Forecasts suggest continued strong momentum and have been upgraded several times over the last 12 months:

I added Hunting to SIF on 6 Mar 2024 at 300p.

TP Icap (LON:TCAP)

This interdealer broker is a complex business to understand. Its core in-person financial broking business is in structural decline, being overtaken by electronic trading platforms.

However, demand remains and TP ICAP also has some attractive non-broking assets, notably data group Parameta Solutions.

Some estimates have valued Parameta at over £1bn – this subsidiary is seen by some investors as a prime candidate for a lucrative spinout.

My feeling that earnings visibility is quite poor with this business, at least for outsiders. But with the shares trading on less than eight times earnings and yielding 6.5%, I think plenty of bad news is already in the price. I can see scope for a re-rating.

I added TP ICAP to SIF on 12 Mar 2024 at 220p.

Cairn Homes (LON:CRN)

This Irish housebuilder is less well known among UK investors than the big British firms, but housing market conditions are different in Ireland. Cairn appears to be in a decent position to help satisfy a shortage of new homes.

Operating profit rose by 10% last year and the group is generating double-digit margins and attractive free cash flow. A forecast yield of 6.8% is a further temptation, although I wouldn’t chase this stock too high.

I added Cairn Homes to SIF on 19 Mar 2024 at 134p.

Note: You can see a spreadsheet showing all SIF trades since inception here. E&OE.

Cash & position sizing

Holding cash aids performance during periods when the market is falling, but weighs on performance in a bull market. I think that SIF’s cash position – often substantial – has played a role in the portfolio’s outperformance over the last eight years.

However, while I’ve grown used to holding more cash than I do in my main portfolio, SIF’s cash weighting reached a record high of 61% at the end of 2022. I felt this was simply too high for almost any likely scenario, barring another black swan event like the pandemic.

Ever since the portfolio’s inception I have periodically adjusted the default position size to reflect portfolio growth. In the third quarter of 2023, I went one step further and reduced the target number of holdings from 20 to 16, while maintaining the same 20% margin for losses I’ve always used to ensure the portfolio should never run out of cash.

After six months, this appears to be bearing fruit. The portfolio’s cash weighting is now down to a more palatable 31%, from 42% at the end of last year:

Going forward, I intend to continue managing position sizing fairly actively by reviewing it quarterly.

Looking ahead

Except for possible changes to position sizing, I’m not planning any other changes to my SIF system this year. After a lean patch last year, the portfolio is now up to 15 holdings and I’m fairly happy with the opportunities being flagged up in my screen results.

The last eight years have convinced me of the value of patient consistency. My plan is to maintain this through what promises to be an interesting year.

As always, please feel free to share your thoughts on SIF and my investing approach below. All feedback is very much appreciated, and really does help to shape the future of this long-running project.

Disclosure: At the time of publication, Roland owned shares in all the SIF portfolio holdings listed above except Cairn Homes.