SIF Income portfolio half-year review: strong Q2 leaves me optimistic

The second quarter of 2025 saw my rules-based SIF model portfolio enjoy a V-shaped recovery from the tariff travails of April.

It’s too soon to be sure if this recent momentum will persist during the second half of the year. But as I explained in a recent article, I think there’s reason to be optimistic about the prospects for the FTSE 250 and SmallCap indices at the moment.

Despite some recent strong runs, valuations still look relatively attractive to me. A plethora of recent takeover offers suggest private buyers can also see attractions.

SIF’s tilt to income this year has slightly altered my stock selection criteria, but not by much. I’m hopeful that the formula which has allowed the portfolio to outperform the market over the last nine years will continue to work in the uncertain global conditions we seem to be seeing at the moment.

How the SIF folio works: as a quick reminder, here is a summary of the rules I use to run this portfolio:

• I select shares to buy from this stock screen through 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 they issue a profit warning or fall by more than 25% below the portfolio’s cost price, they’re sold at the next weekly review;

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

Here’s a review of the portfolio’s H1 performance and Q2 trading activity. (You can find my Q1 2025 review here.)

SIF H1 25 Performance Review

The capital value of the SIF portfolio rose by 11.9% during the second quarter of 2025, compared to a gain of 3.2% for the FTSE All Share index. Unfortunately, this outperformance only served to cancel out SIF’s underperformance during the first quarter of the year.

The end result at the end of June was that the portfolio was neck and neck with its FTSE All Share benchmark, with both up by around 6.6% year to date:

Taking a longer view, here’s how SIF has performed since inception in April 2016:

SIF’s total gain (ex-dividends) of 108% since April 2016 equates to an annualised return of 8.3%.

The FTSE All Share index has risen by 36% over the same period, giving an annualised return of 3.4%.

Income performance: the charts and stats above relate to share price performance only.

SIF has been investing for income since the start of 2025. For now, I’ve opted to track price gains and dividend returns separately to provide greater clarity on performance.

The table below shows share price gains and income returns from the portfolio so far this year, together with those of my FTSE All-Share benchmark:

SIF portfolio review

The second quarter of 2025 was an unusually active period for SIF.

At the start of the quarter, the portfolio had 18 stocks. During the period, I sold six shares and added nine, leaving SIF with a record-breaking 21 positions.

In allowing this to happen I have actually exceeded my self-imposed limit of 20 positions. I have been relaxed about this as the portfolio’s income mandate means that holding too much cash increases the chance of underperformance versus an index tracker, which is fully invested by definition.

However, I’m not planning to allow the portfolio to get any larger than this. Indeed, SIF’s low cash weighting means that adding more than one further position is not affordable without making some sales first:

I’m going to leave the virtual portfolio’s standard position size of £80k unchanged for Q3, but may review this in Q4 when I hope to be able to increase the position size using retained dividends in addition to (hopefully) capital gains.

Here’s a snapshot of the SIF portfolio as it stood on 1 July 2025:

Portfolio metrics

In my Q1 review, I introduced a new reporting measure I’m going to use to track the portfolio. This measures a handful of key metrics at the end of each quarter. I feel it’s a useful way of tracking whether the portfolio is staying within its remit and becoming cheaper – or more expensive, which is what happened in Q2:

SIF portfolio changes in Q2

Stocks sold in Q2

Six stocks exited SIF during the second quarter, split evenly between winners and losers. The winners included a takeover and a successful turnaround.

Happily, the losses on the losers were far smaller than the gains for the winners. This is a pattern I aim to encourage through the application of my profit warning and stop-loss sale rules.

Coats (LON:COA)

The early sale of this venerable textiles firm was prompted by my stop-loss rule. While the shares have recovered somewhat since, Coats’ Falling Star styling highlights the continued decline in earnings forecasts here.

• Bought: 95.9p on 13 Nov 24

• Sold: 69.6p on 8 Apr 24

• Income return: 0%

• Total return: -28%

Cairn Homes (LON:CRN)

This Irish housebuilder remained in SIF for 13 months and performed well, aided by strong conditions in its domestic market.

Graham commented on Cairn in the DSMR on 14 Jan 25.

• Bought: 134p on 19 Mar 24

• Sold: 162p on 29 Apr 25

• Income return: 2.8%

• Total return: 23%

Marks and Spencer (LON:MKS)

This impressive turnaround performed well until a major cyber attack was reported in April. I sold the SIF position shortly after when it no longer passed all of my screening rules.

The company has since said it expects a 32% pro forma hit to FY26 profits as a result of this incident.

I covered M&S’s full-year results and explained why I was happy to be out in the DSMR on 21 May. I also looked at the broader issue of handling such problems in this piece.

• Bought: 306p on 4 Jun 24

• Sold: 383p on 29 Apr 25

• Income return: 0.3%

• Total return: 25%

Frp Advisory (LON:FRP)

Business advisory group FRP issued a (small) profit warning on 8 May, prompting my sale.

Mark covered this news in the DSMR on 8 May, since when the stock has continued to drift lower on weak momentum.

• Bought: 134p on 6 Aug 24

• Sold: 128p on 13 May 25

• Income return: 3.1%

• Total return: -2%

Bakkavor (LON:BAKK)

Founder-led food producer Bakkavor attracted takeover interest from FTSE 250 peer Greencore earlier this year.

After some negotiation, an offer was agreed with the selling shareholders that netted SIF a total return of more than 60% in under six months. If only investing was always this easy!

• Bought: 131p on 14 Jan 25

• Sold: 207p on 27 May 25

• Income return: 3.7%

• Total return: 61%

Hilton Food (LON:HFG)

This protein producer (meatpacking) business proved a less successful investment than Bakkavor. It was sold for a total return close to breakeven after a lacklustre six months.

Nothing much went wrong here, but in this case the momentum signals highlighted by my screen failed to turn into positive share price progress.

• Bought: 891p on 11 Sep 24

• Sold: 848p on 24 Jun 25

• Income return: 3.9%

• Total return: -2%

New stocks added in Q2

Here’s a list of the new stocks I added to SIF (and my personal holdings) during the second quarter.

Disclosure: Roland owns all of the shares listed in the SIF portfolio.