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Give Me Strength!

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
simoan
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Give Me Strength!

#436181

Postby simoan » August 20th, 2021, 10:36 am

A year ago today, I started building an experimental real-money portfolio based on negative Relative Strength (RS). So, it's a highly contrarian approach but one aimed at obtaining capital growth using the force of "reversion to the mean" i.e. the initial aim was to find quality companies that had been oversold or unnecessarily overlooked in the recovery since the March low and which had significantly underperformed the FTSE ALL Share over a given time period (I initially chose 6 months as it was nearest to the timescale since March).

I should add this is not a mechanical strategy, just a method of screening for shares worthy of further research for potential purchase within the portfolio. The idea is to only buy shares when they meet the criteria and consider a sale once the RS has turned positive and relative outperformance is established. However, the buy/sell decisions are discretionary based on newsflow and other factors thrown up by research - some of the qualifying companies are likely to be structurally challenged and underperforming for good reason.

I tried to keep the criteria as simple as possible and settled on a screen that combines two filters; one detecting the relative underperformance of the share price and the other quality factors to filter out the dross:

Share price filter
Market Cap > £50m
6 month RS < -10%
Price vs 52 week low <= 20%

Quality filter
5 year Average ROCE > 10%
5 year Average Operating Margin > 10%
Cash Return On Invested Capital (CROIC) > 10%

As I say this is just an experiment! It is not something I am committed to and the GMS portfolio consitutes a very small part of my investment portfolio. In that sense, it is a virtual portfolio, with holdings across multiple investment accounts. I already held several of the shares bought so the holding within the GMS portfolio are top-ups made when highlighted by the screen.

To date the results of the GMS portfolio have been reasonably positive. In its first year it is up by 45.72% versus 21.16% for the FTSE AS (excluding dividends) as of the close on August 19th 2021. NB. This is according to the Stockopedia portfolio tool! One thing of note is that the performance closely tracked the FTSE AS until late February during the "dash for trash" and the outperformance has mostly come in the last six months. More lately it has benefitted from two takeovers - Ultra Electronics (ULE) and Stock Spirits (STCK).

If I get time I will maybe do a review on the Portfolio board. Actually, I can't believe I just wrote that because I retired at the end of July and assumed I would have more time to do that kind of thing, but in reality I've never been busier! :)

All the best, Si

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Re: Give Me Strength!

#436187

Postby monabri » August 20th, 2021, 10:57 am

I'd be interested in a review and , in particular, the Op. Margin and ROCE figures relative to your "settings" (how many selections would have dropped through the filter if the 2 metrics had been increased a little).

Does "GMS" reflect you view that when you look at the company you are puzzled as to it's underperfomance?

Anyway, you've "teased" us now....a review would be appreciated! ;)

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Re: Give Me Strength!

#436198

Postby simoan » August 20th, 2021, 11:31 am

monabri wrote:I'd be interested in a review and , in particular, the Op. Margin and ROCE figures relative to your "settings" (how many selections would have dropped through the filter if the 2 metrics had been increased a little).

Does "GMS" reflect you view that when you look at the company you are puzzled as to it's underperfomance?

Anyway, you've "teased" us now....a review would be appreciated! ;)

The problem with screening is that you don't want to set the bar too high or too low, resulting in very few or way too many candidates that meet the criteria. That is why I tried to keep the quality settings sensible at 10%. The current settings generally throw up 10 to 20 candidates (currently 18) which means you can look at each without spending hours. If you decide you only want to research shares with higher OM and ROCE, then that is still possible. However, the idea is to filter out low quality companies not those that have decent quality metrics. Shares that average 10% ROCE and OP margins are more than decent!!

I'm never puzzled by underperformance relative to the market because it is not perfect! And therein lies the opportunity. The GMS screen is intended to discover some of these opportunities that meet the base quality criteria. I will try to post tables showing the current portfolio and output of the screen later on as this will be easier than doing a full review!!

All the best, Si

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Re: Give Me Strength!

#436210

Postby simoan » August 20th, 2021, 12:07 pm

Below is the current GMS screen output. This shows 1,3 and 6 month Relative Strength and the quality metrics. The table is ordered by Price vs 52 week low.

Ticker | Name                    | Mkt Cap (£m) | RS 6m (%) | RS 3m (%) | RS 1m (%) | ROCE 5y Avg (%) | Op Mgn 5y Avg (%) | CROIC (%) | Price vs 52w Low (%)
CEY | Centamin | 1,119 | -19.05 | -21.93 | -10.54 | 16.52 | 31.93 | 29.29 | 1.55
HSV | Homeserve | 3,153 | -17.48 | -4.05 | -3.02 | 12.86 | 12.61 | 13.50 | 3.14
IOM | Iomart | 265 | -31.97 | -17.06 | -1.55 | 12.24 | 16.21 | 12.91 | 3.54
ITRK | Intertek | 8,460 | -15.97 | -12.54 | -5.39 | 24.29 | 15.01 | 26.65 | 4.34
BVXP | Bioventix | 209 | -15.65 | -4.71 | -1.00 | 59.65 | 77.43 | 146.56 | 7.17
ASHM | Ashmore | 2,430 | -23.49 | -9.45 | -3.29 | 23.27 | 64.55 | 119.62 | 9.00
AJB | Aj Bell | 1,752 | -10.03 | -2.05 | 2.66 | 37.80 | 32.16 | 84.00 | 9.02
MONY | Moneysupermarket.com | 1,371 | -18.38 | -8.41 | -4.10 | 46.48 | 28.73 | 30.01 | 9.24
POLY | Polymetal International | 7,177 | -10.12 | -13.25 | -6.22 | 22.60 | 36.05 | 17.08 | 9.66
CNC | Concurrent Technologies | 63 | -21.50 | -8.32 | 4.30 | 13.41 | 16.39 | 22.97 | 11.33
HL. | Hargreaves Lansdown | 7,048 | -10.53 | -13.41 | -8.74 | 69.46 | 64.43 | 158.81 | 12.32
FRES | Fresnillo | 6,159 | -22.47 | -7.57 | 5.46 | 11.53 | 25.16 | 11.53 | 12.55
RSW | Renishaw | 3,810 | -21.92 | -4.82 | 5.91 | 14.61 | 15.95 | 10.84 | 14.50
ASY | Andrews Sykes | 228 | -14.28 | -4.23 | -4.74 | 28.98 | 24.91 | 37.26 | 14.89
SPE | Sopheon | 92 | -16.85 | 0.39 | -2.42 | 18.94 | 13.33 | 24.32 | 15.79
LSEG | London Stock Exchange | 44,554 | -24.93 | 3.88 | 3.44 | 11.12 | 30.91 | 16.98 | 16.66
ROR | Rotork | 2,853 | -15.51 | -6.85 | -9.41 | 18.43 | 17.24 | 22.86 | 18.60
FEVR | Fevertree Drinks | 2,675 | -12.72 | -15.87 | -2.03 | 33.97 | 29.31 | 28.81 | 19.59

Iomart, Intertek, Bioventix, and London Stock Exchange are already held within my GMS portfolio and qualify for further investment subject to a 15% maximum per share holding limit.

All the best, Si

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Re: Give Me Strength!

#436229

Postby monabri » August 20th, 2021, 1:04 pm

I have shares in 3 of the list....ITRK, HL and LSEG. (in reverse order of %-age).

Are you using a paid for service to filter (eg Simply Wall Street) or a bespoke spreadsheet (StepOne..?) ?

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Re: Give Me Strength!

#436235

Postby simoan » August 20th, 2021, 1:32 pm

monabri wrote:I have shares in 3 of the list....ITRK, HL and LSEG. (in reverse order of %-age).

Are you using a paid for service to filter (eg Simply Wall Street) or a bespoke spreadsheet (StepOne..?) ?

I'm using a paid for service. All numbers are sourced from Stockopedia who use data supplied by Refinitiv... now part of the London Stock Exchange and the acquisition of which is the reason the latter qualified for the screen, and still does! :)

I will post up the current state of the portfolio at close of play today.
All the best, Si

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Re: Give Me Strength!

#436364

Postby simoan » August 20th, 2021, 10:34 pm

Current portfolio and performance below as of the market close. It currently consists of 15 holdings. The first purchase on 20th August 2020 was A G Barr. The last sale was half of the holding in Ultra Electronics which had exceeded the 15% maximum weighting threshold.

Ticker | Name                       | Bid Price (GBP) | Cost per share (GBP) | Gain (%) | Weighting (%)
TRCS | Tracsis | 10.200 | 4.988 | 104.48 | 7.54%
WJG | Watkin Jones | 2.330 | 1.369 | 70.26 | 6.19%
MGP | Medica | 1.730 | 1.139 | 51.89 | 11.10%
ULE | Ultra Electronics Holdings | 33.160 | 21.897 | 51.44 | 8.39%
BAG | A G Barr | 5.600 | 4.245 | 31.93 | 5.34%
GAW | Games Workshop | 117.000 | 93.785 | 24.75 | 4.94%
FRP | Frp Advisory | 1.190 | 1.010 | 17.84 | 4.28%
GSK | Glaxosmithkline | 15.154 | 13.097 | 15.71 | 4.63%
LSEG | London Stock Exchange | 80.340 | 71.436 | 12.46 | 4.52%
RWS | Rws Holdings | 6.270 | 5.698 | 10.03 | 5.54%
BVXP | Bioventix | 41.000 | 40.191 | 2.01 | 7.33%
ITRK | Intertek | 52.500 | 52.412 | 0.17 | 8.02%
SPSY | Spectra Systems | 1.550 | 1.612 | -3.85 | 7.56%
FNX | Fonix Mobile | 1.550 | 1.649 | -5.98 | 7.59%
IOM | Iomart | 2.390 | 2.732 | -12.52 | 7.02%

All the best, Si

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Re: Give Me Strength!

#436368

Postby AsleepInYorkshire » August 20th, 2021, 11:21 pm

Nope ... sorry ... but for someone who doesn't have a lot of time on his hands you seem to have a lot of time on your hands :lol:

Sorry that's my way of saying excellent posts.

Let me have your address and costs and I'll send you my pension fund to invest.

Thank you

AiY

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Re: Give Me Strength!

#436426

Postby simoan » August 21st, 2021, 11:49 am

AsleepInYorkshire wrote:Nope ... sorry ... but for someone who doesn't have a lot of time on his hands you seem to have a lot of time on your hands :lol:

Sorry that's my way of saying excellent posts.

Let me have your address and costs and I'll send you my pension fund to invest.

Thank you

AiY

Just shows how easily you can be deceived! Apart from the initial post the others took no more than 5 minutes - download Excel formatted data from Stockopedia, quickly re-format, and post as a table on TLF using to the most excellent Table Formatter tool. Anyone would think I didn't spend 4 hours cutting stuff down in the garden yesterday... it must all have been a bad dream ;)

As for your pension fund, I'd stick it in much safer investments. I'm not sure the risk/reward of this portfolio is suitable, even though it forms a very small part of mine.

All the best, Si

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Re: Give Me Strength!

#436569

Postby Pendrainllwyn » August 22nd, 2021, 3:59 am

An interesting approach. Thanks for sharing. I focus on Return on Capital (and other factors) but not Relative Strength but notice I own 6 of the 15 portfolio names including my last three purchases; Fonix Mobile, Games Workshop and London Stock Exchange. Medica I had on a very short watchlist for a while when it was around 120 but didn't have funds to invest at the time and the price shot up. A shame as there aren't that many interesting healthcare names on LSE in my opinion. A couple of these names are new to me and I will take a look at them. Thanks again.

Pendrainllwyn

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Re: Give Me Strength!

#436608

Postby simoan » August 22nd, 2021, 11:28 am

Pendrainllwyn wrote:An interesting approach. Thanks for sharing. I focus on Return on Capital (and other factors) but not Relative Strength but notice I own 6 of the 15 portfolio names including my last three purchases; Fonix Mobile, Games Workshop and London Stock Exchange. Medica I had on a very short watchlist for a while when it was around 120 but didn't have funds to invest at the time and the price shot up. A shame as there aren't that many interesting healthcare names on LSE in my opinion. A couple of these names are new to me and I will take a look at them. Thanks again.

Pendrainllwyn

It seems that you're approach is similar to mine and we fish in the same pool of shares :) I have never used Relative Strength either but on observing that a number of good quality companies had not recovered from the initial pandemic lows of March and early April 2020 this time last year, I thought it worthy of further investigation. I subsequently set up screens using a negative RS filter for 1,3 and 12 month periods which I scan each day along with the 6 month screen. Given the Share price filter is so dependent on the current price it does change quite frequently; as an example HL, AJB and POLY which only marginally met the RS criteria have now left the screen I posted two days ago! So what I'm looking for is consistent negative strength where a share is highlighted by the screen for an extended period of time, and preferably also appears in the other time period screens. However, I like the fact the filter is based on real information rather than any earnings based metrics that are dependent on broker estimates.

With regard to the quality filter, IMO it is a little too simplistic and I would ideally like to include a minimum FCF yield based on the 5 year average FCF, however the Stockopedia screening tool does not allow this, so this is something I normally do manually as part of further research. Maybe I should add minimum Gross margin and free cash flow conversion rules to make the screen a bit more Fundsmith like? :)

All the best, Si

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Re: Give Me Strength!

#436618

Postby monabri » August 22nd, 2021, 12:10 pm

with regards to the FCF , one could readily obtain the info from Morningstar but it would be a manual task.

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Re: Give Me Strength!

#436620

Postby simoan » August 22nd, 2021, 12:17 pm

monabri wrote:with regards to the FCF , one could readily obtain the info from Morningstar but it would be a manual task.

Stockopedia provides FCF for each financial year, so I have the data, it just doesn't calculate an average as it does for other metrics. This means I have to compute the 5 year average manually, as you say. FCF tends to vary from year to year so using a single year does not tell the whole story which is why I tend to use an average as well as looking for any trends, particularly a downward trend :)

All the best, Si

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Re: Give Me Strength!

#436681

Postby Pendrainllwyn » August 22nd, 2021, 4:46 pm

simoan wrote:Maybe I should add minimum Gross margin and free cash flow conversion rules to make the screen a bit more Fundsmith like?

Makes sense. A few financial performance metrics that Fundsmith track (gross and net operating profit margin, interest cover and leverage) I compute directly from financial statements. Some others like FCF yield I find trickier. I wish I knew exactly how Fundsmith compute their metrics so I could accurately compare their portfolio figures to mine.

One of your portfolio names I Iooked into is now on my watchlist. I hadn't heard of the company before so appreciate your post. No spare funds right now so it might be there for a bit.

Best of luck,
Pendrainllwyn

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Re: Give Me Strength!

#437084

Postby dealtn » August 24th, 2021, 1:54 pm

simoan wrote:Current portfolio and performance below as of the market close. It currently consists of 15 holdings. The first purchase on 20th August 2020 was A G Barr. The last sale was half of the holding in Ultra Electronics which had exceeded the 15% maximum weighting threshold.

Ticker | Name                       | Bid Price (GBP) | Cost per share (GBP) | Gain (%) | Weighting (%)
TRCS | Tracsis | 10.200 | 4.988 | 104.48 | 7.54%
WJG | Watkin Jones | 2.330 | 1.369 | 70.26 | 6.19%
MGP | Medica | 1.730 | 1.139 | 51.89 | 11.10%
ULE | Ultra Electronics Holdings | 33.160 | 21.897 | 51.44 | 8.39%
BAG | A G Barr | 5.600 | 4.245 | 31.93 | 5.34%
GAW | Games Workshop | 117.000 | 93.785 | 24.75 | 4.94%
FRP | Frp Advisory | 1.190 | 1.010 | 17.84 | 4.28%
GSK | Glaxosmithkline | 15.154 | 13.097 | 15.71 | 4.63%
LSEG | London Stock Exchange | 80.340 | 71.436 | 12.46 | 4.52%
RWS | Rws Holdings | 6.270 | 5.698 | 10.03 | 5.54%
BVXP | Bioventix | 41.000 | 40.191 | 2.01 | 7.33%
ITRK | Intertek | 52.500 | 52.412 | 0.17 | 8.02%
SPSY | Spectra Systems | 1.550 | 1.612 | -3.85 | 7.56%
FNX | Fonix Mobile | 1.550 | 1.649 | -5.98 | 7.59%
IOM | Iomart | 2.390 | 2.732 | -12.52 | 7.02%

All the best, Si


I own 2, but interestingly both of the top 2 risers. The other, which looks less good, but positive, over 1 year I have held for approx. 5 years and has more than trebled on that time frame. Perhaps I should investigate the others!

Thank you for the post(s).

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Re: Give Me Strength!

#437104

Postby simoan » August 24th, 2021, 3:17 pm

dealtn wrote:I own 2, but interestingly both of the top 2 risers. The other, which looks less good, but positive, over 1 year I have held for approx. 5 years and has more than trebled on that time frame. Perhaps I should investigate the others!

Thank you for the post(s).

Hi dealtn,

My largest overall holding is in Watkin Jones although only one purchase qualified for the portfolio. I also have longer term holdings in six others (BVXP, TRCS, GAW, BAG, MGP & SPSY) of which the holdings in the portfolio were top-ups bought in the past year when they appeared in the screen. All others are shares I have never held, or considered buying before.

As you will be aware, this little experiment goes against the grain of everything they tell you with regard to Relative Strength. I wouldn't necessarily recommend it! In particular, Iomart and Spectra Systems are in obvious downtrends so it looks like the screen will not spare you from knife catching accidents. I don't understand what's going on with SPSY? It's a pretty opaque company but they had £14m net cash at end of last FY and they have an authority with WH Ireland to buy-back over 3m shares in the market, yet they have not purchased any since May 17th. So a little concerning, I guess we'll find out more at the interims next month.

All the best, Si

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Re: Give Me Strength!

#437289

Postby simoan » August 25th, 2021, 12:21 pm

Just for full transparency, after further research, I decided to buy another tranche of Iomart this morning within the portfolio at 235.6p. Probably a knife catching exercise but I just can't understand why it is at a five year low? Yes, many of its potential customers have delayed making decisions on their cloud and network infrastructure during the pandemic but 90% of revenue is recurring. Yes, ROCE and margins are on a slightly worrying downward trend, and revenue stalled in FY to March 2021 but that covered the whole first 12 months of the pandemic and they still paid a dividend which increased by 8.7%. To me that shows it as a fairly resilient business. The 5 year average FCF is 16.6p which puts it on an average FCF yield of 7%. FCF in FY21 was 20.6p. That just seems too cheap to me, despite the negatives.

BTW This is a small cloud services provider with its own data centres and 100G network infrastructure with a good quality and well diversified client list. There has also been a recent changing of the guard with the COO promoted to CEO and the founder retiring, which could mean a placing of a large chunk of the founders shareholding is just around the corner. It wouldn't surprise me if institutions were aware of this and hence the lack of strength.

All the best, Si

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Re: Give Me Strength!

#437338

Postby Pendrainllwyn » August 25th, 2021, 3:30 pm

Thanks to an early redemption of a preferred equity position I was able to take a position in FRP Advisory today. It has a high ROE which I like but there isn't much liquidity in the stock so a relatively small position will do. Topped up a few other holdings too. Si, thanks again for the lead.

Pendrainllwyn

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Re: Give Me Strength!

#437343

Postby monabri » August 25th, 2021, 3:56 pm

some snippets on Iomart - I've not read them.

https://simplywall.st/stocks/gb/softwar ... strong-cou

https://simplywall.st/stocks/gb/softwar ... ts-capital

https://simplywall.st/stocks/gb/softwar ... -heres-wha

Recent "Insider dealing" (from Simply Wall Street)
14 May 21 Buy UK£19,950 Reece Donovan Individual 7,500 UK£2.66
10 Feb 21 Buy UK£15,900 Scott Cunningham Individual 5,000 UK£3.18
03 Dec 20 Buy UK£10,238 Reece Donovan Individual 3,250 UK£3.15
29 Oct 20 Buy UK£30,950 Ian Steele Individual 10,000 UK£3.10

(Donovan being the recently promoted CEO, Cunningham is the CFO, Steele = Independent Chair of the Board)

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Re: Give Me Strength!

#437351

Postby simoan » August 25th, 2021, 4:11 pm

monabri wrote:some snippets on Iomart - I've not read them.

https://simplywall.st/stocks/gb/softwar ... strong-cou

https://simplywall.st/stocks/gb/softwar ... ts-capital

https://simplywall.st/stocks/gb/softwar ... -heres-wha

Recent "Insider dealing" (from Simply Wall Street)
14 May 21 Buy UK£19,950 Reece Donovan Individual 7,500 UK£2.66
10 Feb 21 Buy UK£15,900 Scott Cunningham Individual 5,000 UK£3.18
03 Dec 20 Buy UK£10,238 Reece Donovan Individual 3,250 UK£3.15
29 Oct 20 Buy UK£30,950 Ian Steele Individual 10,000 UK£3.10

(Donovan being the recently promoted CEO, Cunningham is the CFO, Steele = Independent Chair of the Board)

Thanks monabri. I was aware of the director dealing from the data provided on Stockopedia. Director trades are not something I pay that much attention to usually, particularly where the sums involved are insignificant in comparison to the annual salary. These are really very small trades in that regard.

All the best, Si


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