SIF Income portfolio 2025: battling the FTSE 100 winners

2025 marked the first year of the SIF portfolio’s tilt to income. My initial impression of the modest changes I made in order to increase the portfolio’s yield are that they’ve worked largely as expected.

While underperforming the market slightly, SIF delivered a respectable double-digit gain in 2025 and generated a useful income premium over its FTSE All-Share index benchmark.

Given the market backdrop last year, SIF’s lack of exposure to FTSE 100 big caps probably held back performance. That’s inevitable sometimes.

Fortunately, the portfolio’s returns were lifted by takeover offers for International Personal Finance (LON:IPF) and Bakkavor (LON:BAKK) and the belated purchase of gold miner Endeavour Mining (LON:EDV). The latter has since become the portfolio’s largest position.

I’m broadly happy with last year’s result and plan to leave my screening rules unchanged in 2026. This should allow the updated system to deliver a year of returns without any transition impact (positive or negative) from selections made under the previous rules.

Let’s take a closer look at how the portfolio performed last year and at SIF’s trading activity since my Q3 update.

How the SIF folio works: as a quick reminder, SIF is a model portfolio that I mirror within my own real money portfolio. Here is a summary of the rules I use to buy and sell shares:

• I select new shares from my SIF stock-buying screen in a weekly review, adding new shares when possible, while taking into account diversification by sector and the number of existing holdings;

• Shares are held for a minimum of nine months. However, if a stock issues a profit warning or falls by more than 25% below the portfolio’s cost price, it’s sold at the next weekly review;

• After nine months, I test shares against my SIF stock-selling screen. If they pass all the rules, they remain in the portfolio subject to a rolling monthly review. If they fail, they’re sold.

SIF 2025 performance: +17%

The SIF portfolio delivered a total return of 17.1% in 2025, including 5.6% of dividend income. As with Ed’s NAPS, this was the third-best year in the portfolio’s history since its inception in 2016.

That SIF underperformed the FTSE All-Share while also delivering such a solid result highlights how strong the returns from the UK indices were last year. That’s not an excuse for underperforming. But as Ed explained in his year-end StockRank review, outperforming market cap-weighted indices is not always easy for stock-picking investors.

The chart below shows SIF’s 2025 total return versus the index’s capital gain in 2025:

Here’s a more detailed comparison of the portfolio’s performance against its benchmark, splitting out income and capital gains:

Zooming out for a long-term view, here’s how SIF has performed against the FTSE All-Share since its inception in April 2016. Again, 2025 includes SIF dividends but not those for the All Share:

In total, the SIF portfolio has delivered a gain of 131.4% since April 2016, or 9.1% annualised (including dividends for 2025 only). 

The FTSE All Share index has risen by 56.9% on an equivalent basis over the same period, giving an annualised return of 4.8%.

Winners and losers in 2025

2025 was relatively busy for the portfolio, with a total of 23 positions closed during the year. At the top of the list were two takeovers. At the bottom were several companies whose share prices were hit by profit warnings and declining expectations:

The 12 winners outnumbered the 11 losers by a small margin.

However, what’s probably more significant is that the winners’ average gain of 26.7% comfortably outweighed the losers’ average loss of 15.2%. This helped drive the portfolio’s overall positive return.

I believe that achieving this result is at least partly attributable to my 25% stop-loss and profit warning sell rules.

After nearly a decade of running SIF, I’ve become convinced that cutting losses is crucial in a trading portfolio like SIF, where holding periods are limited. In my view, the benefits of cutting losers comfortably outweighs the risk of missing out on the occasional rapid recovery.

SIF Q4 portfolio review

Of the 23 shares sold last year, 10 were sold in the final quarter. This somewhat hectic series of disposals was not matched by new buys. My screening results dried up during the closing months of 2025, providing fewer new opportunities.

In total I made the following SIF trades in Q4:

• Buys: 4

• Sales: 10

As a result of this imbalance, the number of holdings in the portfolio fell from 20 to 16 during Q4. When combined with a strong Q4 weighting to dividend payments, this left SIF somewhat cash-rich at the end of the year. At the end of December, SIF’s cash balance accounted for 30% of the portfolio’s value, up from 12% at the end of Q3:

Position sizing: I review the portfolio’s position sizing quarterly to help manage SIF’s cash weighting. My aim is to always have sufficient cash to be able to open new positions during a market crash, but not so much cash as to needlessly dilute the investment returns from my holdings.

To try and achieve this, I calculate position size by deducting 20% from the value of the portfolio and dividing the remainder by 20. All positions are equally sized and there are no top ups.

This formula is an approximation and probably errs towards excessive caution. But it’s served me well for nearly 10 years and I don’t plan to change it in 2026. SIF’s default position size will remain unchanged at £90k in Q1 2026.

Portfolio Snapshot

Here’s a snapshot of the portfolio on 2 January 2026:

Portfolio metrics

One change I made last year was to introduce a new reporting measure to track the average valuation of the stocks in SIF. Against a backdrop of positive returns, I am pleased to see that the stocks in SIF became slightly cheaper and higher yielding last year.

I’m also encouraged to see the portfolio’s average PEG ratio has remained under 1x. This suggests that at least some of my shares may be priced attractively relative to expected earnings growth:

In the remainder of this article, I’ll take a look at the new stocks I added to the portfolio during Q4 2025.

Portfolio changes in Q4 2025

New stocks

GSK (LON:GSK)

The FTSE 100 pharmaceutical group has been a disappointing investment for many years. But performance has improved and I think the business is in a stronger position – with better momentum – than it has been for some time.

The StockRanks look favourable…

… while the shares continue to trade at a significant discount to FTSE peer AstraZeneca. If recent earnings momentum can be maintained, I’d like to think this discount could narrow:

I took a broadly positive view on GSK’s third-quarter results in October. These highlighted particularly good progress in the Specialty Medicines division, supporting a modest upgrade to guidance.

I’m also optimistic about the company’s new CEO, Luke Miels, who took charge on 1 January. While I think his predecessor Emma Walmsley made significant progress and was unfairly criticised at times, Miels was the architect of much of the company’s reshaped portfolio, in his previous role as Chief Commercial Officer. He’s a career pharmaceutical specialist with deep sector knowledge and seems a good choice to maintain and extend recent new product momentum.

Will 2026 be the year that GSK’s share price escapes the trading range it has occupied for the last decade? It’s too soon to be sure, but I’m cautiously optimistic.

S&U (LON:SUS)

This family-controlled specialist lender operates under two brands, the Advantage motor finance business and the newer Aspen business, which provides bridging loans for property developers.

Like much of the wider motor finance sector, S&U’s trading has been held back by regulatory and legal challenges recently. However, these issues are now largely resolved or contained and recent trading has been strong, as highlighted by Chairman Anthony Coombs in December’s trading statement:

This surge clearly confirms the abilities of our businesses, once freed from the shackles of regulatory intervention.

While S&U shares are no longer trading at a discount to book value, I think the valuation remains reasonable for a company that was generating double-digit returns on equity until recently.

High ValueRank and MomentumRank scores suggest to me that we could see continued share price strength if trading news remains positive:

Norcros (LON:NXR)

Bathroom and kitchen products company Norcros is something of a perennial value stock – although investors with good timing have been able to enjoy some attractive returns over the last decade:

This chart might seem to suggest that now is the time to be taking profits, rather than adding exposure. This may yet prove to be true. However, I think there are some factors supporting the view that Norcros could be on a more sustainable growth trend this time.

As Mark observed in July, continued acquisitions are helping to achieve economies of scale and lessen the impact of the company’s long-running pension deficit.

Mark’s prediction that the Fibo acquisition would be earnings accretive also appears to have been correct. A useful EPS upgrade followed November’s interim results, which were otherwise said to be in line with expectations:

Earnings growth is now expected to be c.18% in FY27, which begins in April. If that can be achieved, the current forward P/E of 9 looks undemanding to me. I’m pleased to see this view supported by attractive Quality and Momentum scores:

Topps Tiles (LON:TPT)

There is perhaps a little too much overlap between Norcros and my most recent addition, leading UK tile retailer Topps Tiles. I’ve justified this by viewing UK-centric Topps as a pure-play on the housing market and domestic economy, whereas Norcros also operates in South Africa and is a manufacturer. But there’s definitely some overlap, all the same.

I try to avoid too many subjective decisions when running SIF, but choices such as these inevitably arise sometimes.

Topps itself appears to be trading well, with growth across its core, online and trade operations. Adjusted revenue rose by 6.8% to £265.4m during the 52 weeks to 28 September 2025, while adjusted pre-tax profit climbed 46% to £9.2m.

This dramatic improvement in (adjusted) profits was driven by improved gross margins, which supported a c.£10m increase in gross profit. This comfortably outweighed the £5.77m increase in operating costs over the same period.

One potential risk is a major management reshuffle. Longtime CEO Rob Parker was replaced by Alex Jensen on 8 December, while Topps will also get a new CFO when Caroline Browne joins from Watches of Switzerland Group in the spring.

In the meantime, Topps recently appointed its second interim CFO since the departure of the previous incumbent in September. This suggests to me that the appointment of a new permanent CFO may have taken a little longer than hoped for.

With the caveat that a new management team might adopt a new strategy, Topps Tiles’ valuation and dividend yield look appealing to me, from both value and income perspectives:

The company’s balance sheet looks fine as well, with net cash excluding lease liabilities at the end of last year.

Quality metrics are also strong, with a respectable 14% return on capital employed:

I’ll be keen to see what the new CEO has to say in January’s trading update, but I’m encouraged by last year’s positive trading and evidence of improving momentum.

Sold stocks

Here’s a summary of the stocks I sold from SIF during the fourth quarter of 2025.

Disclosure: at the time of publication, Roland owned all the shares listed in the SIF portfolio. He also owned shares in IG Group Holdings and City of London Investment Group.