Wild’s Winter Portfolios 2024-25: another season of big profits?

With the Covid years in the rearview mirror, something like normal business has resumed for stock markets. It’s been volatile, but the trend has been largely positive, with areas of significant outperformance – stand up the US technology sector. And, during their 10th year since launch, it was a return to winning ways for Wild’s Winter Portfolios too.

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Hit hard during two of the three pandemic winters, the winter portfolios generated double-digit returns in 2022-23. They did even better last time, the consistent portfolio of more reliable stocks enjoying its best winter ever with a total return of 26.8% in 2023-24. 

The higher risk “aggressive” portfolio was also in a feisty mood, rallying 17.9% compared with a 14.2% total return for the FTSE 350 benchmark index. It would have been significantly more if it weren’t for JD Sports Fashion (LSE:JD.). By mid-December the retail chain was up 37%, but a month later it was losing 16% following a nasty profits warning.

Overall performance of both portfolios was even more impressive given interest rates were glued to a 15-year high the entire winter; policymakers fearing inflation had yet to be tamed. Old hands will remember before the financial crisis when borrowing costs were last this high, but for investors born since the mid-1990s, last winter will have been a shock. Accustomed to cheap money throughout their adult lives, suddenly they’re paying over 6% for a two-year fixed rate mortgage.

Now 10 years old, Wild’s Winter Portfolios boast an impressive track record. The aggressive portfolio has generated a total return of 111.3% and the consistent portfolio 79.8%. 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 30 April 2016, and so on. For a fair comparison with the FTSE 350, up 78.5% on the same basis, performance does not include any dealing costs.

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 the new Wild’s Consistent Winter Portfolio 2024-25 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 15.7% versus an average gain of just 4.7% for the FTSE 350 benchmark index.

To access even greater potential returns, we relax the entry criteria for the aggressive portfolio for 2024-25. That makes it a little riskier, but even now it also has one stock with a 90% winter win rate and four with eight positive years out of the past 10. The average winter return for the 2024-25 aggressive portfolio since 2014 is 20.8%.

The five stocks in each of the 2024-25 winter portfolios will be announced on Thursday 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 30 years, would have grown to £280 (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 £442. Conversely, if they had chosen to only invest over the summer months, they would have lost money; their original £100 would be worth just £58.

“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.

“And of course Covid had a significant impact too. For example, in 2020 the Sell in May Effect was contradicted by the large sell-off in equities seen in February and March that year. However, in the three years since then the Sell in May Effect has strongly re-asserted itself. In the last 20 years the average outperformance of the winter over the summer portfolio has been 5.1%. In the last three years the outperformance has been respectively 22.8%, 8.7% and 18.2%.”    

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This time last year I was talking about a poor summer for global stock markets, and for last year’s winter portfolio constituents. But that was fine. It’s the winter we’re concerned with, and poor performance over the summer months only reinforces the seasonal investing theory.

This summer has been different. While the UK market has managed modest gains – the FTSE All-Share index is up 2.1% since 30 April – most international peers have excelled. China has bounced back, Germany’s up over 8%, while India, Brazil and Hong Kong have rallied hard. But of course, it’s Wall Street where the best gains have been seen – the Nasdaq tech index has added 18% and the broader S&P 500 an impressive 16%.

Since the end of April 2024, the five stocks that will make up the 2024-25 consistent portfolio have risen by 5.4%: admittedly driven by significant outperformance at one constituent. The aggressive portfolio stocks are up an average of 16.4%. Again, a couple of outliers are responsible for that.

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

Looking back on my article this time last year, I was talking about recession. And while global central banks continue to manage a decline in both interest rates and inflation, and a soft landing for the economy remains the most likely outcome, it has become a little less nailed on in recent weeks. A recession in 2025 remains a risk.

I also mentioned the US election a year ahead of the event. With the vote now just days away on 5 November, Kamala Harris and Donald Trump are neck and neck. Trump has been good for markets in the past, but then so have the Democrats during Biden’s term. In these situations, there is clear political risk right at the start of the winter season.

And just a day before the winter portfolios are announced, the UK’s Labour administration will unveil its first Budget. There’s a £22 billion black hole to fill, but the government wants to raise even more. There have been more rumours ahead of this Budget than any I can remember. It could, of course, be a damp squib, but much depends on your interpretation of “broadest shoulders”, because we’re told it’s those who have them that will be hardest hit by Chancellor Rachel Reeves’ money-raising policies.

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Interest rates remain a key focus. Borrowing costs haven’t dropped as fast as anyone hoped, but UK investors are backing the Bank of England to cut at least once more this year, possibly twice. In the US, Goldman Sachs thinks the Federal Reserve will cut rates by 25 basis points at every meeting from now till June, hacking rates back to 3.25-3.5%. We’ll see.

There are military conflicts too, in both Ukraine and the Middle East, either of which could flare up at any time. And stock markets don’t go up in a straight line forever, so high valuations, especially for American tech stocks, will likely remain a worry for many investors.

These are just a few of the key issues investors will have to navigate over the next six months. There will be bumps in the road, sure, but this time of year does, historically, generate the best stock market returns. We’re hoping that Wild’s Winter Portfolios 2024-25 replicate the success of their first 10 years, marking the beginning of a second decade with another big profit.