Wild’s Winter Portfolios 2023-24: 10th anniversary edition

Covid played havoc with established trends and investment strategies, our seasonal portfolios included. Last year, with the pandemic a painful memory, global equity markets had a new set of problems to deal with. We asked if they could deliver at a time of sky-high inflation and rapidly rising interest rates. The answer was yes. Now we’ll see if they can repeat their success as markets face challenges both old and new.  

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Up 19% and 39% two-thirds of the way through last winter, Wild’s consistent and aggressive winter portfolios looked set to easily recoup the previous year’s pandemic driven losses. They did, partially, but it would have been more impressive had a new wave of uncertainty not bludgeoned investor sentiment toward the end of the six-month period.  

Weak data out of China was only part of the problem. Speculation around the scale of future interest rate rises had markets in a spin, just as the financial sector was reeling from the collapse of Silicon Valley Bank. This played out alongside an ongoing cost-of-living crisis, rising cash savings rates and bond yields racing to multi-year highs.

Despite everything, the higher risk aggressive portfolio returned an impressive 18% last winter, or 19.7% if you include dividends. That easily beat the FTSE 350 benchmark index, up 10.6% and 12.6% respectively. The consistent portfolio also did well, rewarding investors with a 9% profit and a total return of 10.5%.

Now, with a nine-year track record, the aggressive portfolio is up 49.8% and has generated a total return of 63.1%. These figures assume an investment of £10,000 at launch in 2014 and sold six months later on 30 April 2015. The money is then reinvested in the following year’s winter portfolio, sold on 3- April 2016, and so on. The consistent portfolio is up 12.9% and 27.7% respectively, and the FTSE 350 35.1% and 55.5%

How do we do it?

The objective is to create two portfolios that best exploit stock market seasonality. Screening only stocks listed in the FTSE 350 index for a greater level of liquidity, the five most reliable winter performers of the past 10 years make up Wild’s Consistent Winter Portfolio. A basket of five higher risk/higher return stocks which still exhibit impressive consistency over the winter months become Wild’s Aggressive Winter Portfolio.   

Four of the five constituents of Wild’s Consistent Winter Portfolio 2022-23 have each risen in nine of the past 10 winters. One has reason every winter for the past decade. The average return between November and April, excluding dividends, is 13.9% versus an average gain of just 3.6% for the FTSE 350 benchmark index.

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To access even greater potential returns, we relax the entry criteria for the aggressive portfolio for 2022-23. That makes it a little riskier, but even now it also has one stock with a 100% winter record and four with eight positive years. The average winter return for the 2022-23 aggressive portfolio since 2012 is 18.2%.

The five stocks in each of the 2023-24 winter portfolios will be announced on Tuesday 31 October.

The rationale

Our interest was originally piqued by an anomaly in the stock market which demonstrates that buying and selling at two specific dates of the year has historically generated better returns than if you had stayed invested all year round.

Buying a portfolio of shares on 1 November, or late on 31 October, and selling them on 30 April the following year, has significantly outperformed the wider stock market over more than a quarter of a century. It provides investors with a clear strategy that’s simple to execute and enjoys a successful performance history.

Data provided by Stephen Eckett, mathematician and co-founder of Harriman House, publisher of The UK Stock Market Almanac, shows that £100 invested in the UK stock market (as measured by the FTSE All-Share Index) in 1994 and held continuously for the past 27 years, would have grown to £271 (excluding dividends). However, if they had only invested in the market between 1 November and 30 April every year, then that £100 would be worth £394. Conversely, if they had chosen to only invest over the summer months, they would have lost money; their original £100 would be worth just £63.

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“This anomaly, sometimes called the Sell in May Effect, has been known about for a long time,” explains Mr Eckett, “there is even some evidence that dates knowledge of this effect back to 1694.

"However, it is certainly the case that the economic and political turmoil seen in recent years has disrupted many long-term established trends and anomalies such as this Sell in May Effect. For example, in the 20 years 1982-2001 the market in the winter failed to outperform that in the summer in just two years, but in the following 20 years the stock market in the winter has underperformed the summer in five years. Whether the anomaly will re-establish itself at some point as strong as it was before remains to be seen.”

This summer has been a poor one for global stock markets, and it was no different for the new winter portfolio constituents. From the end of April 2023 to close of play on Friday 20 October, the five stocks that will make up the 2023-24 consistent portfolio had fallen by an average of 18.5%. The aggressive portfolio stocks were down an average of 4.1%.

Of course, this strategy is not without risk, none are. But the theory is compelling.

Why does the winter portfolio strategy work?

No conclusive studies neatly explain the historic outperformance of stock markets during the winter months, but there are plenty of theories, some more plausible than others.

Perhaps most likely is that far more money flows into the market over the winter months. This typically happens when big players at financial institutions on Wall Street and the Square Mile return from their summer breaks. The City doesn’t shut down these days for the cricket, horse racing and rowing at Henley, but plenty of decision makers are out of the office on holiday, so it is probable that some of the big trading decisions are left until everyone is back in the office. Investment strategies deployed in the following months increase liquidity and boost sentiment.

Most investors will have heard of the Santa rally, when equity markets historically have done well in the weeks leading up to Christmas. You could attribute this to seasonal optimism, or, more likely, end of calendar-year window dressing of portfolios by funds and investment houses. Selling losers and buying successful stocks flatters the numbers that determine City bonuses.

Then, in the spring, at the end of the financial winter, investors take advantage of tax-efficient products in the run up to tax year-end. In what is often referred to as ISA season, many investors rush to use their tax-free allowance in the final days, weeks and months of the tax year. So-called early birds then use their ISA allowance as soon as the new tax year begins.

Events to monitor over the next six months

Economist Paul Samuelson famously joked that “the stock market has predicted nine out of the last five recessions.” I mention this because I wrote exactly a year ago that “a widely predicted recession is likely to begin in the period covered by these winter portfolios.”

Well, it didn’t, which is largely down to the resilient consumer, and a clever balancing act performed by the US and European central banks, raising rates by enough to cool sky-high inflation, but not enough to choke off growth. So far, economies are on course for a soft landing.

However, the risk that the global economy enters some kind of downturn during the upcoming winter period remains a very real threat. It only takes one wrong move by policymakers to tip us over the edge. And UK policymakers have had their patience tested with stubbornly high inflation.

We’ll find out what the Federal Reserve has decided to do next at its meeting on 1 November. The Bank of England announces its decision a day later. Both are expected to keep interest rates on hold, although it could be a close thing, especially among UK Monetary Policy Committee members.  The next set of inflation data will be crucial and must show a significant decline in the cost of living to keep rate setters happy.

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Nudging inflation in the right direction has been hard enough, especially after Covid and with the war in Ukraine affecting the cost of many goods. Now, a bloody conflict in the Middle East makes the job significantly harder. Already, the price of oil has exceeded $90 a barrel, with Brent crude up as much as 10% since Hamas launched its attack against Israel on 7 October.

The threat of a wider conflict in the region makes it even harder to convince investors, who can get a 5% risk-free return on cash right now, to keep faith in equities.

Investors also have a US presidential election to look forward to in a year’s time. It may seem a long way off, but US stock market history tells us that shares generate more modest gains in the 12 months leading up to a presidential election.

As always, investors have plenty of things to keep an eye on this winter. However, it is, historically, the time of year when companies generate the best stock market returns, and the shares included in this year’s winter portfolios do have an enviable record of outperformance. Hopefully, we’ll be able to celebrate the tenth year of Wild’s Winter Portfolios with a big profit.   

Note: quote and historic performance data from Stephen Eckett updated on 30 October 2023.