The SIF Folio: (Re)introducing My Rules-based Portfolio

11th Feb '20 by Roland Head

14 comments 3408 reads

I’ve now been running the Stock in Focus portfolio here at Stockopedia for nearly four years. Over that time there have been some changes. I’m also aware from subscriber feedback that many newer subscribers may not be familiar with the backstory on this rules-based portfolio.

As SIF approaches its fourth birthday in April, I’ve decided to mix my normal stock coverage with a series of articles taking a fresh look at the portfolio. This week I’m going to start by looking at the rules I use to guide my trading decisions and the results I hope to achieve.

Over the next few weeks, I’ll also be taking a more in-depth look at some of the changes I’m considering for the year ahead.

In the beginning

In 2015, I started the Stock in Focus column here at Stockopedia. The initial idea was to bridge the gap between a stock’s story and its financials. By sticking to the Stocko philosophy that rules-based investments are likely to outperform unstructured selections, I hoped to profile stocks that would go on to perform well.

At the end of 2015, it seemed logical to round up the performance of my picks after I’d written about them. The results were encouraging. So after discussions with boss Ed, I decided to convert my weekly column into a stock portfolio.

The rules were pretty simple. All stocks would be selected using a set of screening rules that I would develop. To ensure complete transparency and provide a reliable audit trail, the portfolio would be run as a Stockopedia Fantasy Fund.

On 19 April 2016, I launched the Stock in Focus (SIF) fantasy fund (this link only works on the old Stockopedia website).

Since then, I’ve bought 94 stocks for the SIF fund and sold 78 of them. After the first year, I was encouraged by progress, so since April 2017 I’ve also been running this portfolio as a real-money fund using my own cash.

Results so far have been encouraging. Here’s how SIF has performed against its FTSE All Share benchmark:

The portfolio has delivered a total return of 47.5 percent including dividends, or 36.5 percent based on capital gains only. Over the same period, the FTSE All Share has risen by 18.5 percent. Unfortunately I don’t have…

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Vsihv

11th Feb '20

hi Roland,

what have you got against housebuilders? Their recent results were sound and seem to have good business momentum for now at least.

vivek

Roland Head

Hi Vivek,

Thanks for your comment. I do agree that there's still a case to be made for investing in
housebuilders. Certainly their results remain (mostly) very good, with no sign of serious margin pressure or slowing sales.

However, I can't help thinking we must be approaching the end of the current housing market cycle.

Unlimited cheap money (ultra-low interest rates and Help To Buy) have sustained the market so far. But this dependence worries me. Builders are also reporting some underlying cost pressure and tighter affordability (despite low rates) in London and the South East.

More and more, I'm seeing suggestions that 'it's different this time'. (e.g. this piece in the FT - paywall). As a value investor by nature, this seems like a warning to me.

I do still have some exposure to the housing market through brickmaker £MBH. For now, I'm more comfortable with this. Time will tell if I'm right!

Cheers,

Roland

Ok fair enough, certainly agree with that late cycle feeling. I have a holding in Redrow (LON:RDW) , which I am keeping for now, although looking at results and capital return, think Barratt Developments (LON:BDEV) is perhaps the best in class operator.

House builders are cyclical and so by defintion they should go through ups and downs. I am comforted by one tangible difference, which is their balance sheet strength compared to previous cycles.

Devlishcunning

Hi Roland,

As best as I can work out FTSE-ASX.TR closed 19/4/16 at 5664.1, and closed 11/2/20 at 7794.85.

According to my best workings, that's 37.6%

Geoff

GrahamF

15th Feb '20

Hi Roland

Thanks for an interesting journey these last couple of years and clear write up of all the changes when they occur.

Although you mention that you are taking momentum into account and I can see some momentum elements in the screen, as you only hold for a maximum of 9 months would bringing a stronger focus on share price momentum (in addition to earnings) help to capture more of the influence of sentiment in the market towards a stock as over a 9 month period I would think that sentiment towards a stock may have a much stronger influence than if this was a long term buy and hold strategy as per Terry Smith.

Susan123

I went to the rules copy link as posted above. I only get 6 results. Can you check the link pls?

Rusty2

Maybe there are only 6 qualifiers at the moment, these are picked over a long period but not all are added to the portfolio for various reasons.

17th Feb '20

Hi Susan123,

The number of stocks which qualify changes all the time. At the time of writing (Monday 17 Feb) there are only six qualifying stocks, so your results sound about right.

Regards,

Hi Graham,

Thanks for your comment. I use 1-year relative strength (RS1Y) as a momentum measure at the moment, but I have been wondering whether I should consider more of a short-term metric, such as RS6m.

The risk with making changes is that it's very hard to know whether they will improve or worsen future results -- unfortunately I don't have the ability to back-test rules.

Thanks Geoff, could I ask where you got the data? I've don't know of anywhere I can get historic daily prices for the total-return indices.

Robert Scoggins

18th Feb '20

H i ... Nice strategy ; l like the middle-of-the-road approach .

Would an equal - weighted approach achieve a better yield or safety net do you think ?

Best wishes , Robert .

Hi Robert,

Thanks for your feedback. Each of the positions in the portfolio is equally sized to start with, so in that sense the portfolio is equally weighted.

I don't have equal weightings across sectors, though. Many sectors are missing altogether. This does carry some risks, but also offers opportunities to benefit by investing in overlooked areas (I hope).

In terms of screening, I think I'd have to change my valuation and growth criteria to select equally across sectors. As a guess, I'd have to look at performance and valuation relative to peers, rather than using fixed screening thresholds.

There's lots of ways of approaching a system such as SIF, and I'm sure there are other equally good or better solutions. My hope is that my system will stimulate discussion and new ideas.

Best wishes,
Roland

Thibaut76

30th May '20

This Folios only focus on UK stocks ? Any particular reason ?

PLS1nve5t

Are you still looking for this data Roland ? I have been manually recording it weekly in my spreadsheet since Sept 2012 - here's a copy, also includes FTSE100 TR.

Regards - Pete

https://docs.google.com/spread...

I say weekly - there may be the odd additional data point for 5th April and 31st Dec if these are mid-week

The SIF Folio: (Re)introducing my rules-based portfolio

In the beginning

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Roland Head

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