The Top 20 Clearest Trending Mid-caps - And Some More Themes For 2025

20th Nov by Edward Croft

66 comments 4405 reads

Last week’s article about the top 20 clearest trending small caps generated a great deal of discussion. Buying strong momentum stocks is just so hard to do. It goes against our fibre. But what is great about this community is that we all learn from each other. Reading a comment like this perhaps gives others courage.

From a behavioural point of view it’s just so hard to jump in after a strong run, yet every time I’ve summoned up the courage to do so it has seemed to work out.

More than this, I discovered several research papers from you all that have inspired me to push some of my research deeper. I am going to run a webinar in a few weeks, and it’s likely these momentum investigations will feature prominently. So thanks for all the feedback and do look out for the invitation.

Several of you asked if I could create a similar list of smooth trending mid-caps. While small-caps are so often the focus of private investors, as they are so under-researched, mid-caps have been the powerhouse of UK markets for decades. While Brexit put a stall on the FTSE 250 more recently, it’s still returned 5.6% annualised since 1996 with a yield (currently) of 3.4% on top. Mid-caps have lower volatility, and often more consistent returns.

The performance of smooth-trending mid-caps

To analyse the performance of mid-caps, I’m using the same approach as last week. We’ve a growing archive of financial data that goes back to 2013 in the UK, which is proving more and more useful for research. So I’ve interrogated it for the following criteria:

Market Cap - between £350m and £2,500m - which is our “Mid-Cap” Size Group.
StockRank at least 75.
Stocks among the top 20% price risers over previous 12 months.
Sorted by trend clarity. (using the r-squared as before)

I tested these rules on a range of portfolio sizes since April 2013. You can see the results below.

These results are quite startling from a few angles.

Firstly, the best returns came from the more concentrated portfolios without much additional risk.
If you compare the risk to the small cap backtests, one has to wonder if chasing small-cap trends is worth it. The standard deviation averages about 18% in this set, while the small-cap list was at…

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Rusty2

23rd Nov

Thanks, l'm surprised it is that low, the chart to me looks better than Just (LON:JUST) one.

Dave R

CMC isituation s interesting with regards this process (or at least what I'm doing) and something I'm thinking about. My initial thoughts are if might highlight a potential flaw as from what I understand R Squared is based on two points in time and if there's a recent blip it can ruin the score. Whereas if the blip happened earlier and recovered the impact on the score would be far less.

PastPerformance

I’ve been actively trading and investing for nearly 30 years and have the same problem. Now, I know full well that to outperform the average you need to do something different. I learned early that a purely contrarian approach (aka catching falling knives) is a one way ticket to the poor house. I always trade AND invest with momentum, but I assume that most people who learned lesson number 1 are doing the same. Meanwhile, buying steady trends is hard because by definition the stock has already risen significantly relative to its long term volatility, which makes it ‘appear’ expensive. Mug punters are docussed on falling knives. Those in my category (who survived the falling knives phase!) are looking for breakouts, new momentum, recoveries from rounded bottoms etc….but still find that buying something in the top right corner is just SO hard, unless value criteria are screamingly cheap, which is rarely the case with such stocks because the smart money is buying in anticipation of sharply improved trading, or continually improving prospects, thus they never look cheap.

I’ll never forget when I visited a top bank’s FX trading floor in my capacity at work, and meeting with their most successful trader. I asked him how he was so consistently profitable and he told me as if he was imparting a great secret….. ‘well, I watch the market carefully, and wait until there is a very clear trend, then I BUY things that are going UP, and I sell things that are going DOWN’….I honestly thought he was taking the piss, but in the years since I’ve thought many times about that conversation and concluded that he was actually confiding his secret sauce. It’s a successful strategy because so few people can do it. I think it works because the truly ‘smart money’ is accumulating and exerting a steady and sustained buying pressure which limits setbacks and results in a steadily rising price aka ‘trend clarity’. They can foresee that the price is cheap even if it looks expensive to both ‘mug punters’ and ‘momentum wizards’ and that in a year or two it’s likely to be 2-3x the current price. If you really believed this, one would buy every little dip, reinforcing the trend clarity. So trading trend clarity is hard because the buying pressure, and lack of selling pressure, comes from the really smart investors with significant resources, and most investors are trying to either buy stuff that appears dirt cheap, or catch rockets.

Stocks l would avoid on the list are:

Currys (LON:CURY) low margin retail, will be hit by National insurance changes. Never liked the brand.

Morgan Sindall (LON:MGNS) low margin, shares gone up too much already.

Playtech (LON:PTEC) l don't invest in gambling companies.

CMC Markets (LON:CMCX) and Keller (LON:KLR) have they lost their momentum following recent updates?

A few others l already own, l won't buy at the moment such as Cohort (LON:CHRT) Pan African Resources (LON:PAF) and PayPoint (LON:PAY).

iwright7

I have an even simpler saying is stuck in my memory which is: “Only buy shares that go UP”! Attribution anyone?

You could use moving averages, when the share price changes, ie goes about the 130 day MA, then buy, sell if it falls below the 130DMA. This was Stan Weinstein strategy. Rolls-Royce Holdings (LON:RR.) would be a good example.

To be honest I don't know how R Squared calculations work in a mathematical way. However I find it difficult to really measure the difference in chart form when it's not obvious. Which is why I've tried to put numbers on it rather than judge charts.

24th Nov

Yes exactly.

Nexxen International (LON:NEXN) was on Ed's list but is delisting soon. Centamin (LON:CEY) was but is being takeover, l think. Replaced by Galliford Try Holdings (LON:GFRD) and Warpaint London (LON:W7L) respectively. Chrysalis Investments (LON:CHRY) probably not allowed as a fund?

That sums up strict rule based systems. Do you blindly follow them or just use it as a basis for further research. To be clear, I'm only going to run a model portfolio for 6-12 months to see how it goes. Happy to give regular updates if there's any interest.

CMC is interesting. If we'd done this a week ago before this week's drop, it would look much better. One days bad performance can wreck the RSQ score if you run the process soon after the drop. But you have the same issue with most rule based systems, they're just a snapshot at a particular time and you're bound to get some duds over time.It also raises the question about if/when you sell individual holdings. Personally I'd use a stop/loss rather than ride out the loss for a fixed period of time.

I use them as a starting point for more research or l add my own rules about margins, debt and spreads. I also look at the charts, if the price has shot up recently l won't buy, l will wait for a pullback, does not always happen, although even Warpaint London (LON:W7L) did fall back 23% recently.

I have set up Ed's selections as a folio, l can track the progress. Both have suffered big falls in the first few days, one small cap was down 50%.

Email sent.

stehuk

Thanks Dave. That all seems fine.

One minor point, that is not really material to the results:

On the summary tab, in the 6 month performance column e.g. cell H2

=(googlefinance(F2)-index(googlefinance(F2,"Price",G2),2,2))/googlefinance(F2)

should really read

=(googlefinance(F2)-index(googlefinance(F2,"Price",G2),2,2))/
index(googlefinance(F2,"Price",G2),2,2)

Peter171

25th Nov

One of my favourite factors for picking a stock has always been selecting those that continue to hit new highs. My reason is that there has to be top notch management skills within that coy. My latest over the last 12 months has been B.P. Marsh & Partners (LON:BPM) . It just doesn’t want to lie down. In my book you can’t beat a top management team. The coy.had an excellent write up in yesterday’s Mail on Sunday . Bm is 83 and still playing an active role.

Currys (LON:CURY) if my memory serves me correctly it was the subject of an unsuccessful takeover offer and I think that played a big factor in its rerating. I have it on my watch list. One thing I have noticed is that it has been doing a lot of tv advertising (trying to increase sales volumes? We shall see)

NorwaySpruce

Very interesting perspective, PastPerformance. Thank you.

26th Nov

Thanks, good spot.

I've also found an error on sheet R34 Data which does impact results. Cell A1 should read =Summary!F34 not =Summary!F33. This is why CHRY had an equal score to FAN. Rectifying the error removes CHRY from the Top 20 as it's RSQ score drops to 0.544 (27/50 on todays values).

Thanks a lot Dave. I've replicated your correction on my copy of the spreadsheet.

To answer my own question. Google could'nt find the answer, but Copilot has.....

...Don't gamble! Take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Attributed to Will Rogers pre 1935.

28th Nov

Dave, I think I've found a small glitch on the spreadsheet.

For RSQ the independent variable should be the date and the dependent variable should be the price.

So the summary sheet should for the RSQ e.g. in cell k2 read =RSQ('R2 Data'!A3:A126,'R2 Data'!B3:B126).

[It makes a significant difference when B3 holds the same value as B126 on the data sheet, as you'll get a divide by zero error for the RSQ as the summary sheet stands.]

The top 20 clearest trending mid-caps - and some more themes for 2025

The performance of smooth-trending mid-caps

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Edward Croft

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