A First BirthdayOn 24 May 2013, the Mechanical Bull portfolio was born. It wasn't called that in the beginning. It was just an idea that I had been thinking about for a while before I decided to put into action. I invested a hypothetical £30K to see where it would lead. It was a couple of months later when I gave it the present moniker.
So where are we a year later? Well according to stock prices on Google Finance, the MB portfolio is £42,779, which is an annual gain of 42.6 per cent. While this may seem impressive, it is important to see performance in perspective.
Comparative AnalysisFirst, we should look at the broader market. The FTSE 100 has been pretty flat over the past year. The FTSE 250 has done somewhat better overall with a rise of about 9 per cent, although it was up by a lot more earlier in 2014 with a big pull back in the last few months.
It is also useful to compare performance against other investment strategies. Stockopedia's "Screen of screens" gained by 25.6 per cent
The MB portfolio would have come 7th equal out of Stockopedia's 65 guru (long) strategies. However, three of those ahead have two or fewer stocks, and so the MB portfolio would have faired even better if these non-diversified strategies were excluded.
Although the MB portfolio has gone sideways for the past 3 months, it has actually held up quite well compared to other strategies and the broader market. Indeed, the MB strategy outperformed all these comparators on 3 month, 6 month and 1 year timescales as this table shows:
Table 1: Portfolio performance up to 25 May 2014
It's Not All Good NewsIt all seems pretty positive so far. However, a closer look at the current state of the portfolio reveals some concerns (Table 2)
Table 2: Mechanical Bull Portfolio - Full History
Three stocks in the original portfolio remain (Dart, Matchtech, and Staffline). All three have seen strong gains with Staffline more than doubling in value. Of those stocks that were sold, only 3 out of 16 have been sold at a loss. Fyffes was the stand out with a 80 per cent gain.
Looking at the new entries shows a rather less satisfactory picture. Indeed, this year's new entries have been pretty dire, with all of them declining in value. This is a concern and gives pause for thought. This shows that the MB portfolio has held up this year mainly due to the robust performance of a small number of long serving, well performing (and thus over-weighted) stocks.
Topsy Turvy MarketAs I mentioned in my previous post there appears to be something rather odd going on in the markets in recent months, with no investment style showing any real strength. Stockopedia's analysis of investment styles (e.g. quality, growth, momentum) shows that these have all underperformed the FTSE 100 over the past three months. Value and income styles are the only ones that have managed to keep up (just!). It is extraordinary to see that the second best performing Stockopedia guru strategy over the past three months has been James Montier's Trinity of Risk. This is a short strategy whose performance is going in completely the wrong direction. It's all very topsy turvy.
It is not very clear what is going on. One theory is that the mid-cap stocks have had such a strong run over the past couple of years that investors are looking for any excuse to sell. Whatever is happening I am fairly certain that sentiment is overriding consideration of fundamentals. In any case, as long as no investment style is doing well, then the MB portfolio is always going to struggle.
ConclusionOverall, I am satisfied with how the last year has gone. I remain convinced there is something in this approach. There is powerful rationale in investing in stocks with all round strengths and this has been reflected in a very good return over the past year.
However, this experiment is a good reminder that progress is not a straight line and there will be times where a strategy doesn't seem to work. One has to remember that markets always revert at which point the benefits of this strategy should start to kick in again.