The Santa Rally Portfolio 2015

The Santa Rally describes the tendency of the stock market to perform strongly in the final two weeks of the year (more info).

The Santa Rally Portfolio comprises the 10 best performing FTSE 350 shares over the Santa Rally period (i.e. roughly the last two weeks of the year) over the last 10 years. The characteristics of the 10 stocks in the portfolio are:

  1. All 10 stocks have positive returns over the two-week Santa Rally period for every year since 2005.
  2. The 10 stocks have the highest average returns of all FTSE 350 stocks over the Santa Rally periods of the last 10 years.

The following table lists these ten shares and their average returns over the Santa Rally periods for the last 10 years.

Company TIDM Avg Rtn(%)
Ashtead Group 7.3
FirstGroup 6.6
Vesuvius 6.4
Croda International 5.9
Informa 5.3
British Land Co 4.9
Spectris 4.8
Pennon Group 4.4
G4S 4.4
Balfour Beatty 4.2

The following chart compares the performance of the Santa Rally Portfolio with the FTSE 350 Index for the past 10 years.

Santa Rally Portfolio [2015]Notes:

  1. The FTSE 350 Index has had positive returns in every Santa Rally period since 2005 except 2012. The average return for the Index over this period for the last 10 years is 2.2%. Last year, in 2014, although the Index was down 1.7% in December as a whole, it actually rose 4.3% in the second two weeks of the month.
  2. The Santa Rally Portfolio has had positive returns every year since 2005. The average return for the Portfolio over the last 10 years is 5.4%, thus out-performing the FTSE 350 each year by 3.2 percentage points.

More on the Santa Rally.

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Quarterly sector momentum strategy (update)

Do FTSE 350 sectors display a quarterly momentum behaviour that can be exploited?

This analysis updates the performance of two strategies, defined as:

1. Strong quarterly sector momentum strategy (Strong QSMS)

The portfolio comprises just one FTSE 350 sector, that being the sector with the strongest performance in the previous quarter. So at the end of each quarter, the portfolio is liquidated and a 100% holding established in the strongest sector of the quarter just finished. This is held for three months, when the portfolio is liquidated and re-invested in the new sector. Therefore the strategy will trade four times a year.

2. Weak quarterly sector momentum strategy (Weak QSMS)

As above, but in this case it is the weakest sector of the previous quarter that is held by the portfolio. (Strictly, perhaps, this should be called a bounceback, or reversal, strategy and not a momentum strategy.)

Only FTSE 350 sectors with at least three component companies are considered. The period studied was from 2005 to the third quarter 2015.

The accompanying chart compares the performance of the two strategies, and adds the FTSE All Share Index as a benchmark. All series are re-based to start at 100.

Quarterly (strong and weak) sector momentum strategies [2005-2015]

Notes-

  1. As can be seen, both the SMS strategies out-performed the index over the period of the study. However, they did so with greater volatility (the standard deviation of the Strong SMS quarterly returns was 0.11, against comparable figures of 0.13 for the Weak SMS and 0.07 for the FTSE All Share Index).
  2. From 2012 the reversal portfolio (Weak SMS) started strongly out-performing the Strong SMS.
  3. A refinement of the strategy would be to hold the two or three best/worst performing sectors from the previous quarter instead of just the one (which would likely have the effect of reducing volatility).
  4. Costs were not taken into account in the study. But given that the portfolio was only traded four times a year costs would not have had a significant impact on the overall performance.

Extract taken from the newly published The UK Stock Market Almanac 2016.

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Shares that like/dislike July

Shares that like July

The following table lists the five FTSE 350 shares that have the best returns in July over the last ten years. For example, Elementis has an average return of 7.6% for the month of July. All stocks have risen in July for at least nine of the past ten years.

Company TIDM Avg(%)
Elementis 7.6
Brown (N) Group 6.9
Greene King 6.8
Shire 6.0
Land Securities Group 5.1

 Shares that dislike July

The following table lists the two FTSE 350 shares that have the worst returns in July over the last ten years. For example, IP Group has an average return of -4.1% for the month of July. Both stocks have fallen in at least seven of the past ten years in July.

Company TIDM Avg(%)
IP Group -4.1
SSE -2.0

An equally-weighted portfolio of the above strong July stocks would have out-performed every year an equally-weighted portfolio of the above weak July stocks by an average of 9.3 percentage points in July for the past ten years.

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Shares that like/dislike June

Shares that like June

The following table lists the three FTSE 350 shares that have the best returns in June over the last ten years. For example, Synergy has an average return of 11.1% for the month of June. All stocks have risen in June for at least eight of the past ten years.

Company TIDM Avg(%)
Synergy Health 11.1
Ted Baker 4.1
RPC Group 5.2

 Shares that dislike June

The following table lists the five FTSE 350 shares that have the worst returns in June over the last ten years. For example, Barclays has an average return of -7.8% for the month of June. All five stocks have fallen in at least nine of the past ten years in June.

Company TIDM Avg(%)
Barclays -7.8
Travis Perkins -7.1
Bodycote -5.6
Schroders -4.0
Morrison (Wm) Supermarkets -3.6

An equally-weighted portfolio of the above strong June stocks would have out-performed every year an equally-weighted portfolio of the above weak June stocks by an average of 12.4 percentage points in June for the past ten years.

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Shares that like/dislike April

Shares that like April

The following table lists the five FTSE 350 shares that have the best returns in April over the last ten years. For example, Fenner has an average return of 9.11% for the month of April. All stocks have risen in April for at least eight of the past ten years.

Company TIDM Avg(%)
Fenner 9.1
Royal Dutch Shell 5.4
Aberdeen Asset Management 4.6
Severn Trent 3.9
SABMiller 3.6

Shares that dislike April

The following table lists the four FTSE 350 shares that have the worst returns in April over the last ten years. For example, Balfour Beatty has an average return of -4.4% for the month of April. All four stocks have fallen in at least eight of the past ten years in April.

Company TIDM Avg(%)
Balfour Beatty -4.4
Reed Elsevier -2.3
BAE Systems -1.6
UNITE Group 0.6

An equally-weighted portfolio of the above strong April stocks would have out-performed every year an equally-weighted portfolio of the above weak April stocks by an average of 7.3 percentage points in April for the past ten years.

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Shares that like/dislike March

Shares that like March

The following table lists the five FTSE 350 shares that have the best returns in March over the last ten years. For example, The Restaurant Group has an average return of 12.4% for the month of March. All stocks have risen in March for at least nine of the past ten years.

Company TIDM Avg(%)
Restaurant Group (The) 12.4
Intertek Group 8.9
Cobham 5.3
Berendsen 5.3
Victrex 2.8

 Shares that dislike March

The following table lists the five FTSE 350 shares that have the worst returns in March over the last ten years. For example, Renishaw has an average return of -4.4% for the month of March. All five stocks have fallen in at least eight of the past ten years in March.

Company TIDM Avg(%)
Renishaw -4.4
Royal Bank of Scotland Group (The) -3.5
PZ Cussons -2.9
HSBC Holdings -2.7
Smiths Group -2.5

An equally-weighted portfolio of the above strong March stocks would have out-performed every year an equally-weighted portfolio of the above weak March stocks by an average of 10.1 percentage points in March for the past ten years.

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Shares that like/dislike January

Shares that like January

The following table lists the five FTSE 350 shares that have the best returns in January over the last ten years. For example, Computacenter has an average return of 9.3% for the month of January. All stocks have risen in January for nine of the past ten years.

Company TIDM Avg(%)
Computacenter 9.3
CSR 8.1
Electra Private Equity 6.8
St James’s Place 5.6
Euromoney Institutional Investor 4.4

Shares that dislike January

The following table lists the five FTSE 350 shares that have the worst returns in January over the last ten years. For example, Unilever has an average return of -3.2% for the month of January. All five stocks have fallen in eight of the past ten years in January.

Company TIDM Avg(%)
Berkeley Group Holdings (The) -4.7
Tesco -4.3
GlaxoSmithKline -3.3
Unilever -3.2
Dairy Crest Group -3.2

An equally-weighted portfolio of the above strong January stocks would have out-performed every year an equally-weighted portfolio of the above weak January stocks by an average of 10.5 percentage points in January for the past ten years.

 

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The FTSE 100/S&P 500 monthly switching strategy

Although since 1984 the S&P 500 has overall greatly out-performed the FTSE 100 (+1021% against +575%), there are months in the year when the FTSE 100 fairly consistently out-performs the S&P 500.

The following chart shows the monthly out-performance of the FTSE 100 Index over the S&P 500 Index since 1984.

Comparative average monthly returns of FTSE 100 v S&P 500 [1984-2014]Looking first at the orange grey bars in the chart, this shows, for example, that on average in January the FTSE 100 has out-performed the S&P 500 by -0.6 percentage points (i.e. the UK index has under-performed the US index in that month). From the chart we can see that the five months that are relatively strong for the FTSE 100 are: February, April, July, August and December. For example, the FTSE 100 has out-performed the S&P 500 in February in 13 of the past 15 years.

Now, turning to the bown bars, these display the same average monthly out-performance of the FTSE 100 over the S&P 500, except this time the S&P 500 Index has been sterling-adjusted. One effect of adjusting for currency moves is to amplify the out-performance of the FTSE 100 index in certain months (April, July, and December). Conversely, the FTSE 100 under-performance is amplified in January, May and November.

Whereas, before, the relatively strong FTSE 100 months were February, April, July, August and December, we can see that the currency-adjusted strong months are just April, July, and December.

The FTSE 100/S&P 500 monthly switching strategy (FSMSP)

The above results suggest a strategy of investing in the U.K. market (i.e. the FTSE 100 Index) in the months April, July and December and in the U.S. market (i.e. the S&P 500 Index) for the rest of the year. In other words, the portfolio would be invested in the S&P 500 from January to March, at the end of March it switches out of the S&P500 into the FTSE 100 for one month, then back into the S&P 500 for two months, into the FTSE 100 for July, back into the S&P 500 for four months, then back into the FTSE 100 for December, and finally back into the S&P 500 to start the next year.

The following chart shows the result of operating such a strategy from 2000. For comparison, the chart also includes the portfolio returns from continuous investments in the FTSE 100 and S&P 500.

FTSE 100-S&P 500 monthly switching strategy [2000-2014]The final result: the FTSE 100 portfolio would have grown 7%, the S&P 500(£) risen 32%, but the FTSE 100/S&P 500 monthly switching portfolio (FSMSP) would have increased 114%. Switching six times a year would have incurred some commission costs, but these would not have dented performance significantly.


UK Stock Market Almanac cover [160 x 240]The above is an extract from the newly published UK Stock Market Almanac 2015.

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Shares that like/dislike December (2014)

Shares that like December

The following table lists the five FTSE 350 shares that have the best returns in December over the last ten years. For example, G4S has an average return of 6.3% for the month of December. All stocks, except Ashtead, have risen in every December for the past ten years.

Company TIDM Avg(%)
G4S 6.3
Balfour Beatty 6.1
William Hill 5.0
Witan Investment Trust 4.8
Ashtead Group 13.4

Shares that dislike December

The following table lists the two FTSE 350 shares that have the worst returns in December over the last ten years. For example, Rank Group has an average return of -4.2% for the month of December. Both stocks have fallen in seven of the past ten years in December.

Company TIDM Avg(%)
Randgold Resources Ltd -1.8
Rank Group (The) -4.2

An equally-weighted portfolio of the above strong December stocks would have out-performed every year, except 2008, an equally-weighted portfolio of the above weak December stocks by an average of 10.1 percentage points in December for the past ten years.

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10 strategies exploiting market anomalies and seasonality trends

Below is a list to ten strategies that look to exploit seasonality trends and market anomalies:

  1. FTSE 100/FTSE 250 monthly switching strategy
  2. Bounceback portfolio
  3. Monthly share momentum strategy
  4. Low-high price portfolio
  5. Quarterly sector strategy
  6. Six-month strategy with MACD
  7. Quarterly sector momentum strategy
  8. Quarterly sector reversal strategy
  9. Comparative performance of FTSE 100 and S&P 500
  10. Tuesday reverses Monday

Further details on these and other such strategies can be found in the UK Stock Market Almanac published this month.

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