SIF Folio 2023 performance review

2023 was a tough year in the markets, especially for UK small-cap investors. For much of the year my systematic SIF Folio remained heavily in cash, with few new opportunities on offer.

However, the final two months of the year saw the FTSE All-Share index gain nearly 7%, as sentiment improved in the face of falling inflation and likely end to interest rate rises. This momentum also injected some life into my screening results, providing some welcome new buying opportunities.

I hope this much-needed Santa Rally also added some pep to your investing results for the year.

Personally, I’m not sure we’re completely out of the woods yet. But the year-end surge certainly provided a useful boost to SIF’s full-year performance, allowing me to clock up a positive performance for the full year.

SIF 2023 performance

The SIF “Stock in Focus” portfolio is a rules-based model portfolio I’ve been running here at Stockopedia since April 2016. Shares are selected from a stock-buying screen and then subjected to additional manual screening to ensure a basic level of diversification.

My screening rules are designed to identify affordable, profitable, growth stocks with positive momentum – broadly speaking, it’s a GARP-type strategy.

The portfolio has a minimum holding period of nine months, after which shares must continue to pass certain screening tests in order to remain in the portfolio. It’s not a long-term buy-and-hold system and there are periods, such as last year, when the folio is heavily weighted to cash.

Last year saw SIF put in a relatively volatile performance, but the eventual outcome was positive.

The value of the SIF model portfolio rose by 5.7% in 2023, modestly outpacing the 3.8% gain delivered by its FTSE All-Share index benchmark. This was a welcome improvement on 2022, when SIF fell by 6%.

These figures exclude dividends, but SIF results include an estimate of dealing costs and Stamp Duty.

Long-term performance remains robust

One year is a short time in the stock market – and certainly too short to judge the success of any investing strategy, in my view.

Although SIF’s performance over the last couple of years has been somewhat mixed, the portfolio has outperformed the FTSE All-Share significantly over the longer term.

SIF has gained 77% since 2016, beating the All-Share by more than 50%:

SIF’s performance translates into an annualised return (including costs but excluding dividends) of 7.7% since April 2016.

The FTSE All-Share index rose by just 2.5% annualised over the same period.

Including dividends, my records suggest that SIF has delivered an annualised total return of 10% per year since April 2016.

What have I learned?

I think the lesson for me over the last seven years has been that consistency is more important than trying to be really clever.

No system will outperform all the time. But coming up with a sensible approach based on proven factors and applying it consistently can be a rewarding way to invest. At least, it has been for me. Since 2017, I’ve been following SIF trades with some of my own cash.

Having a system like this has made it much easier for me to avoid behavioural bias and make consistent decisions over many years, including during difficult periods.

My hope is that the approach I use is reflective of a well-known Warren Buffett quote:

You only have to do a very few things right in your life so long as you don’t do too many things wrong.

Of course, SIF’s annualised returns are not exactly Buffett-like. I know that many subscribers have done much better than me.

Even so, I’m happy to have beaten the market during a period of lacklustre returns for UK stocks as a whole.

In his recent year-end NAPS portfolio review, Ed mentioned that if the NAPS was a fund, it would be ranked 15th of 187 on five-year performance in Trustnet’s UK All Companies Sector.

SIF has gained 41% over the last five years. By my reckoning that would put it in 26th place on Trustnet’s list at the time of writing, just slightly behind the NAPS!

This is slightly tongue in cheek, of course. Funds have legitimate costs and regulatory responsibilities that I don’t have. They also need to be able to scale in a way that private investors’ portfolios do not.

Even so, I think it’s worth emphasising what’s possible for DIY investors, without needing a team of full-time analysts.

2023 winners and losers

Before I take a look at the current state of the portfolio, let’s quickly review last year’s trades.

I sold 12 stocks from SIF last year, seven profitably and five with losses.

16 new shares were added to the portfolio. This resulted in a net increase of four shares, leaving SIF with 13 holdings at the end of the year – up from a rather skinny nine at the end of 2022.

(You can find details of these trades in my quarterly reviews: Q1 2023, H1 2023 amp; Q3 2023.)

As is often the case in the stock market, the majority of returns were driven by a handful of winners. Notable among these were double bagger ME International (LON:MEGP) and bowling operator Ten Entertainment (LON:TEG), which conveniently received a takeover offer just before the end of the year.

Losses on less successful holdings were capped by my rules for selling after a profit warning and on a 25% stop loss.

Here’s a snapshot of the total return (including dividends) from each stock sold from SIF in 2023:

(You can see a spreadsheet with details of all the portfolio’s historic positions here.)

2024: SIF folio holdings

As always, I should emphasise that none of my comments should be taken as advice. Past performance is no guarantee of future returns and the shares listed below are not recommendations. It’s always important to do your own research or seek advice before making any investment decisions.

Here’s a snapshot of how the SIF folio looked when the market reopened at the start of 2024:

I’m pleased to see that most of these shares have high StockRanks. This suggests they may benefit from proven investing factors that have driven positive results in the past.

Regular SCVR readers will recognise many of these names, but there are some larger companies in there too. Some of them I’ve written about in previous articles here.

As always, clicking on the discussion tab on the StockReport will give you a list of all previous coverage of a stock on the site – useful for background reading and familiarisation.

The portfolio’s cash holding was above 50% for much of last year. This seemed likely to become a serious drag on returns, in my view. To try and address this, I increased my standard position sizing during the year.

Recent opportunities to add new stocks to SIF have also helped me to put some cash to work. Although the year-end cash weighting of 42% is still high, it’s a considerable improvement on 61% at the end of 2022:

Looking ahead now, my main buying screen is continuing to provide a more generous selection of choices than it did for much of last year. At the end of 2023, the 10 stocks qualified for the screen – an increase from just three at the end of 2022!

This increased opportunity set also reflects my more bullish view about the market outlook in 2024. Risks remain, but I think there’s plenty of value out there, assuming current levels of corporate profit remain broadly sustainable.

Of course, things could change fast, as we’ve seen several times in recent years.

Regardless of what happens, though, I intend to continue following the system, and look forward to seeing what the year holds.

As always, thank you for reading and commenting over the last year. Please feel free to share your views and questions on SIF in the comments below – and good luck in the markets in 2024!

Disclosure: At the time of publication, Roland owned shares in all the SIF portfolio holdings listed above.

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