SIF Portfolio: Up 19% And Beating The Market In Year One

19th Apr '17 by Roland Head

7 comments 9206 reads

When I started the the Stock in Focus (SIF) portfolio a year ago, I wasn’t sure what to expect. But my fantasy fund has performed well. It’s delivered a 19.0% gain in its first year, versus a 13% increase for the benchmark FTSE All-Share index.

I don’t think that’s a bad start for my first year running this rules-based portfolio, which only takes a few hours a week to maintain. In this piece I’ll review what’s worked and what hasn’t. I’ll also consider whether to make any changes for the year ahead, when I’ll be investing my own cash in the SIF portfolio.

The story so far

I started the Stock in Focus Portfolio as a Stockopedia Fantasy Fund with the ticker SIF on 19 April 2016. You can see the current portfolio and full trading history here. My original article introducing the portfolio is here.

Stocks are selected for the fund from the Stock in Focus Screen results.

This screen is intended to capture good quality companies exhibiting the characteristics of affordable growth. Stocks are held for a minimum of six months and then sold if they no longer qualify for the screen. Target portfolio size is 15-20 stocks, with equally sized positions.

Stock selection is driven by the screen results, but I also apply some personal judgement and a basic set of diversification rules:

Target an approximate 50:50 split between cyclical and defensive stocks (this has proved difficult)
Ensure at least four of the 10 main stock sectors are represented

Has it worked?

Here’s how the portfolio has performed in its first year against its benchmark, the FTSE All-Share index:

SIF Portfolio: +19.0%
FTSE All-Share: +13.0%
Outperformance: +6.0%

My six-month holding period has generated a fair amount of trading activity. Here’s a list of the stocks I’ve sold from the portfolio over the last six months, together with the total return achieved. Each company name is linked to my review of the stock at the time it was sold:

Company	Total return after six months	Share price change since leaving portfolio
Go-Ahead Group	-22.6%	-16%
Persimmon	-16.4%	+32%
GlaxoSmithKline	+4.7%	+5.6%
Macfarlane	-10%	+4.7%
Somero Enterprises	+52%	+40%
Plus500	-52.5% (sold early due to FCA announcement)	+15%

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Howard Adams

19th Apr '17

Roland

This has been an excellent process to follow. Your writeups have taught me a lot about investing as well as utilising the powerful toolset within Stockopedia. I have read and enjoyed each post, so many thanks for your regular and consistent postings.

I too adopted a rule-based approach, inspired by you and the SNAPS postings from Ed. I have also, pleasingly, beaten my bench mark the FTSE 100 and am currently running at a 9%+ premium to it on a rolling annualised basis after 20 months.

I hope you will keep posting.

Regards
Howard

Roland Head

Thanks Howard, it's great to hear that rules-based investing is working for you too.

Regards,

Roland

Patxi

Excellent write up Roland. The real test for any rules based portfolio is surely the performance in a flat or declining market - the next 6 months may be an interesting ride! Good luck.

20th Apr '17

Hi Patxi,

Very true. I'm conscious that market conditions over the last year have been favourable, with a steady upwards trend. By simply filtering out most of the dross, it's not been too difficult to outperform. We'll have to see what happens next!

Regards, Roland

Rusty2

25th Apr '17

Hi, Roland until the last month or so you were tracking the index but in the last month you have gone different ways, do you have any explanation for your out performance recently?

I have reservations about rules based portfolios, buying seems ok but I don't like the inflexible selling. Pan African Resources (LON:PAF) is a good example, that was up about 50% at one time but you had to wait for the review time to decide if to sell, I think you ended up with 10% profit in the end.

Still not sure about the "russian" shares.

28th Apr '17

Hi herbie,

Sorry for the slow reply. Re, outperformance, with a small number of stocks versus the market, I suppose gains (or losses) are likely to be lumpy. That seems to be how the portfolio has progressed over the last year.

As for selling, it's certainly true that developing rules for selling is probably harder than devising rules for buying. Certainly Pan African Resources (LON:PAF) didn't turn out as well as it might have done.

However, I think it's essential to have a defined plan for selling as part of a rules-based portfolio. Otherwise the risk (IMHO) is that selling would become very subjective, which could affect the success of the buying rules.

I'm extending my holding period to nine months this year, but an alternative approach might be to sell when certain valuation/performance criteria pass a specific threshold. I may consider something like this in the future.

Regards,

Roland

Thanks Roland, I did not mean no rules for selling but maybe some trigger points for reviews, such as a 10% share price fall or going under the 50MA, or M rank falling below a figure, rather than waiting for a set time to review for selling. I'm not keen on fixed times for selling.

SIF Portfolio: Up 19% and beating the market in year one

The story so far

Has it worked?

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Roland Head

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