I was able to report some exceptional performances from my regular stock screens during the course of 2014, with nearly 90 per cent outperforming. Average performance was 15 per cent better than the indices on which the screens were performed. However, in my opinion, 2014 should be regarded as something of an exceptional year. Stock screens are not meant to outperform as consistently as the screens did last year over the long term. Screens are generally best regarded as rigid, mechanical strategies that should, if they are well conceived, produce outperformance over the long term for investors that are able to stick steadfastly by them. What's more, for most investors screening will always primarily be an exercise in idea generation.
The performances recorded in 2014 ranged from a 49.1 per cent outperformance of the index to a 3 per cent underperformance for my Big Reliables screen. My international value screen was the worst performer, though, with underperformance of 14.6 per cent (see table).
SCREEN PERFORMANCE FROM 2014 (as reported)
| Screen | Last screen | 1-year* total return | Index 1-year* | Out/underperformance | Index |
|---|---|---|---|---|---|
| Peter Lynch - Stalwarts | 29/04/14 | 65.5% | 11.0% | 49.1% | FTSE All-Share |
| Zweig Small-caps | 17/09/14 | 46.5% | 7.6% | 36.2% | FTSE Small Cap/Aim All-Share |
| O'Shaughnessy Growth | 11/02/14 | 45.3% | 9.0% | 33.3% | FTSE All-Share |
| Strategy Screen | 25/02/14 | 50.5% | 13.1% | 33.1% | FTSE All Share |
| High Yield Low Risk | 16/04/14 | 42.4% | 9.6% | 29.9% | FTSE All-Share |
| Cash Magic | 20/05/14 | 41.9% | 9.7% | 29.4% | FTSE All-Share |
| Genuine Value Small Caps | 10/06/14 | 47.7% | 14.4% | 29.1% | FTSE Small Cap/Aim All-Share |
| Piotroski | 07/01/14 | 49.7% | 17.6% | 27.3% | FTSE All-Share |
| Genuine Value | 04/03/14 | 40.6% | 12.6% | 24.9% | FTSE All-Share |
| John Neff | 28/01/14 | 42.2% | 15.0% | 23.7% | FTSE All-Share |
| Dreman | 14/05/14 | 32.5% | 10.8% | 19.6% | FTSE All-Share |
| High Yield Small Cap (Top 3 2014) | 25/11/14 | 13.7% | -4.4% | 18.9% | FTSE Small Cap/Aim All-Share |
| High Yield Small Cap | 25/11/14 | 13.7% | -4.4% | 18.9% | FTSE Small Cap/Aim All-Share |
| High Quality Small-caps | 13/08/14 | 28.0% | 8.4% | 18.1% | FTSE Small Cap/Aim All-Share |
| Cheap Small-caps | 20/03/14 | 44.5% | 22.8% | 17.7% | FTSE Small Cap/Aim All-Share |
| Have-It-All | 16/12/14 | 23.0% | 5.0% | 17.1% | FTSE All-Share |
| Greenblatt | 04/02/14 | 28.5% | 10.6% | 16.2% | FTSE All-Share |
| Contrarian Value Top 5 | 30/07/14 | 22.2% | 5.6% | 15.7% | FTSE All-Share |
| Safe Yields | 23/07/14 | 22.2% | 6.5% | 14.7% | FTSE All-Share |
| Inflation Beaters | 15/01/14 | 31.2% | 16.7% | 12.4% | FTSE 350 |
| Genuine Growth | 19/11/14 | 13.6% | 2.1% | 11.3% | FTSE All-Share |
| Contrarian Value | 30/07/14 | 16.1% | 5.6% | 9.9% | FTSE All-Share |
| FCF Kings | 23/09/14 | 16.5% | 6.0% | 9.9% | FTSE All-Share |
| Small Cap Special Sits | 08/04/14 | 31.3% | 21.3% | 8.2% | FTSE Small Cap/Aim All-Share |
| Monsters of Momentum | 29/10/14 | 10.7% | 3.3% | 7.2% | FTSE All-Share |
| O'Shaughnessy Value | 19/02/14 | 16.7% | 9.9% | 6.2% | FTSE 350 |
| Slater Small Cap | 16/07/14 | 19.9% | 13.7% | 5.5% | FTSE Small Cap/Aim All-Share |
| Dividend Overachievers | 30/06/14 | 15.0% | 9.1% | 5.4% | FTSE 350 |
| Great Expectations | 01/12/14 | 11.8% | 6.5% | 5.0% | FTSE 350 |
| Cheap High-Growth Aim | 14/10/14 | -3.4% | -5.4% | 2.1% | FTSE Aim All-Share |
| Long-Term Income 2014 | 01/04/14 | 0.5% | 0.2% | 0.3% | FTSE 350 |
| HighQuality Large Caps | 02/09/14 | 7.7% | 7.6% | 0.1% | FTSE All-Share |
| Best of British | 7/10/14 | 3.7% | 6.0% | -2.2% | FTSE 350 |
| US Recovery | 25/03/14 | 5.7% | 8.1% | -2.2% | FTSE 350 |
| Big Reliables | 17/06/14 | 3.5% | 6.7% | -3.0% | FTSE 350 |
| Global Value | 12/11/14 | -7.4% | 8.4% | -14.6% | S&P Global Small Cap |
| Average | - | 24.8% | 8.5% | 14.8% | - |
| Best | - | 65.5% | 22.8% | 49.1% | - |
| Worst | - | -7.4% | -5.4% | -14.6% | - |
*To last screen date. Source: Thomson Datastream
The performance of my 'live' screens in the year to date suggests the results I’m likely to report on in 2015 will be decidedly more mixed than the stellar 2014 turnout. The most extreme case in point at the moment is my Peter Lynch Stalwarts screen. After a disappointing first outing in 2012, the 2013 portfolio produced an astronomical 66 per cent total return from seven stocks, compared with 11 per cent from the FTSE All-Share. However, as things now stand, the same screen is currently suffering the worst year-to-date performance of all the 'live' screens with a negative total return of 24 per cent compared with a negative 1 per cent from the index. Indeed, of the seven 'stalwart' stocks from 2014, two are geared to the oil price, another, Bank of Georgia, has suffered due to the political and economic conditions in neighbouring Russia and Ukraine, and another stock, Kingfisher, has been hit due to its exposure to the grim outlook for European consumers.
Conventional stock-screening wisdom would be to stick with these positions and only refresh the portfolio at the predetermined date (in this case April). Indeed, this is not an altogether crazy idea as the point of maximum pessimism for the stocks in this screen may not been too far off now. However, the extent of some of the share price declines suffered in this portfolio does suggest there are grounds to overlay the screen process with some sort of stop-loss system, which is something that I will consider the merits of implementing in the future.
What's more, while the average running period for the 'live' screen is currently around six months, it is still noteworthy that 'only' about two-thirds are currently outperforming. In fairness, the 'live' screens overall are still doing very well in what has been a difficult market. But, although this is the first time I am conducting a review of my regular screens, I imagine at the same point last year the outlook would have seemed a lot more positive. It's also noteworthy that over some periods certain indices have produced negative total returns, meaning outperformance can still equate to a loss.
It's gratifying that the new investment trust screen (Outperforming and Overlooked) that I extensively backtested before running last year is showing a good level of outperformance so far, although over the 10 years tested the screen only outperformed in around seven out of 10 one-year periods. The Late Bloomers screen, which I introduced last year to hunt for late-stage cyclicals, is also just about outperforming, although market unrest has not been favourable for this type of cyclically-risky investment.
In some ways it is a bit of a relief not to see the stupendous results of last year repeating, as it serves as a sobering reminder that no one strategy is ever going to produce consistent outperformance. Some will win and some will lose over the short term, but good strategies should work out well over the long term. What's more, as already mentioned, the primary role of screens for many investors is to provide a source of ideas on which to conduct further research that will possibly lead to a purchase. As such, strong performance numbers are simply a validation that the screens are using credible ideas to sift through the market.
A number of the screens are also highly concentrated and therefore very high-risk. The eye-popping performance of the Small Cap Special Situation screen in the year to date is a case in point, with most of the performance coming down to the selection of a single company, Victoria, by the screen and Datastream's assumption that all dividends (including the £3 special dividend the stock paid last year) are immediately reinvested.
Longer-term outperformance records are beginning to build up nicely for some of the screens now as can be seen in the 'since inception' columns in the large table. Unsurprisingly the longer a screen has been running the more outperformance it boasts, and the cumulative performance numbers need to be seen in that context. It also should be noted that the cumulative performance data does not factor in dealing costs or spreads, which in the case of my small-cap screens can be a significant factor.
CUMULATIVE TABLE
| Screen | Last Screen | YTD total return | Index YTD | Out/Under Performance | 1yr* total return | Index 1yr* | Out/Under Performance | Since Inception total return* | Index since inception* | Out/Under Performance | Inception date | Index |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Small Cap Special Sits | 08/04/14 | 102.1% | -7.7% | 118.8% | 31.3% | 21.3% | 8.2% | 31.3% | 21.3% | 8.2% | Apr-13 | FTSE Small Cap/Aim All-Share |
| Dreman | 14/05/14 | 11.7% | -2.8% | 14.9% | 32.5% | 10.8% | 19.6% | 32.5% | 10.8% | 19.6% | Apr-13 | FTSE All-Share |
| John Neff | 28/01/14 | 17.1% | 2.6% | 14.1% | 42.2% | 15.0% | 23.7% | 88.4% | 34.4% | 40.2% | Jan-12 | FTSE All-Share |
| Outperforming and Overlooked investment trusts | 7/10/14 | 14.5% | 0.5% | 14.0% | - | - | - | - | - | - | Aug-07 | S&P Global Small Cap |
| Big Reliables | 17/06/14 | 10.8% | -1.4% | 12.4% | 3.5% | 6.7% | -3.0% | 37.7% | 32.4% | 4.0% | May-11 | FTSE 350 |
| Contrarian Value Top 5 | 30/07/14 | 10.5% | -1.7% | 12.3% | 22.2% | 5.6% | 15.7% | 158.0% | 30.7% | 97.4% | Jul-11 | FTSE All-Share |
| Best of British | 7/10/14 | 12.6% | 1.5% | 10.9% | 3.7% | 6.0% | -2.2% | 63.5% | 40.1% | 16.7% | Oct-11 | FTSE 350 |
| Cheap Small-caps | 20/03/14 | 0.4% | -8.9% | 10.2% | 44.5% | 22.8% | 17.7% | 44.5% | 22.8% | 17.7% | Mar-13 | FTSE Small Cap/Aim All-Share |
| Safe Yields | 23/07/14 | 7.2% | -2.0% | 9.4% | 22.2% | 6.5% | 14.7% | 69.1% | 30.8% | 29.3% | Jul-11 | FTSE All-Share |
| HighQuality Large Caps | 02/09/14 | 5.8% | -3.3% | 9.3% | 7.7% | 7.6% | 0.1% | 102.0% | 51.0% | 33.8% | Aug-11 | FTSE All-Share |
| Zweig Small-caps | 17/09/14 | 4.7% | -3.7% | 8.7% | 46.5% | 7.6% | 36.2% | 87.3% | 33.9% | 39.9% | Aug-12 | FTSE Small Cap/Aim All-Share |
| All-Share F-Score Value Hunt | 27/08/14 | 4.5% | -3.4% | 8.1% | - | - | - | - | - | - | Sep-07 | FTSE All-Share |
| HighQuality Small-caps | 13/08/14 | 5.0% | -2.6% | 7.8% | 28.0% | 8.4% | 18.1% | 75.5% | 31.9% | 33.1% | Aug-12 | FTSE Small Cap/Aim All-Share |
| Cash Magic | 20/05/14 | 4.2% | -1.4% | 5.7% | 41.9% | 9.7% | 29.4% | 41.9% | 9.7% | 29.4% | May-13 | FTSE All-Share |
| High Yield Small Cap (Top 3 2014) | 25/11/14 | 3.9% | -1.2% | 5.2% | 13.7% | -4.4% | 18.9% | 62.8% | 23.4% | 31.9% | Nov-12 | FTSE Small Cap/Aim All-Share |
| O'Shaughnessy Value | 19/02/14 | 3.5% | -1.2% | 4.7% | 16.7% | 9.9% | 6.2% | 32.8% | 25.8% | 5.6% | Feb-11 | FTSE 350 |
| Contrarian Value | 30/07/14 | 2.6% | -1.7% | 4.3% | 16.1% | 5.6% | 9.9% | 68.7% | 30.7% | 29.1% | Jul-11 | FTSE All-Share |
| Monsters of Momentum | 29/10/14 | 5.3% | 1.9% | 3.4% | 10.7% | 3.3% | 7.2% | 97.0% | 27.0% | 55.1% | Dec-10 | FTSE All-Share |
| Genuine Growth | 19/11/14 | 1.0% | -1.8% | 2.9% | 13.6% | 2.1% | 11.3% | 57.6% | 25.7% | 25.4% | Nov-12 | FTSE All-Share |
| Aim F-Score Value Hunt | 27/08/14 | -6.9% | -9.1% | 2.5% | - | - | - | - | - | - | Jul-07 | FTSE Aim All-Share |
| High Yield Low Risk | 16/04/14 | 3.9% | 1.5% | 2.4% | 42.4% | 9.6% | 29.9% | 106.0% | 28.5% | 60.3% | Apr-11 | FTSE All-Share |
| High Yield Small Cap | 25/11/14 | 1.1% | -1.2% | 2.3% | 13.7% | -4.4% | 18.9% | 62.8% | 23.4% | 31.9% | Nov-12 | FTSE Small Cap/Aim All-Share |
| Great Expectations | 01/12/14 | 0.6% | -1.7% | 2.3% | 11.8% | 6.5% | 5.0% | 121.0% | 44.0% | 53.5% | Dec-11 | FTSE 350 |
| O'Shaughnessy Growth | 11/02/14 | 2.6% | 0.9% | 1.7% | 45.3% | 9.0% | 33.3% | 87.2% | 24.2% | 50.7% | Feb-12 | FTSE All-Share |
| Late Bloomers | 09/05/14 | -0.4% | -1.8% | 1.4% | - | - | - | - | - | - | Oct-07 | FTSE All-Share |
| FCF Kings | 23/09/14 | -0.1% | -1.1% | 1.0% | 16.5% | 6.0% | 9.9% | 16.5% | 6.0% | 9.9% | Sep-13 | FTSE All-Share |
| Long-Term Income 2014 | 01/04/14 | 0.4% | 0.1% | 0.3% | 0.4% | 0.1% | 0.3% | 0.4% | 0.1% | 0.3% | Apr-14 | FTSE 350 |
| US Recovery | 25/03/14 | 0.9% | 1.0% | -0.1% | 5.7% | 8.1% | -2.2% | 30.1% | 27.7% | 1.9% | Mar-12 | FTSE 350 |
| Global Value | 12/11/14 | -2.1% | -1.8% | -0.4% | -7.4% | 8.4% | -14.6% | 22.1% | 35.5% | -9.9% | Nov-12 | S&P Global Small Cap |
| Cheap High-Growth Aim | 14/10/14 | -0.1% | 1.2% | -1.3% | -3.4% | -5.4% | 2.1% | -3.4% | -5.4% | 2.1% | Oct-13 | FTSE Aim All-Share |
| Genuine Value | 04/03/14 | -3.3% | -1.9% | -1.5% | 40.6% | 12.6% | 24.9% | 40.6% | 12.6% | 24.9% | Feb-13 | FTSE All-Share |
| Have-It-All | 16/12/14 | 0.1% | 2.9% | -2.7% | 23.0% | 5.0% | 17.1% | 130.0% | 40.8% | 63.4% | Dec-11 | FTSE All-Share |
| Strategy Screen | 25/02/14 | -5.9% | -1.8% | -4.2% | 50.5% | 13.1% | 33.1% | 50.5% | 13.1% | 33.1% | Feb-11 | FTSE All-Share |
| Dividend Overachievers | 30/06/14 | -5.7% | -1.3% | -4.4% | 15.0% | 9.1% | 5.4% | 34.1% | 37.3% | -2.3% | Jun-12 | FTSE 350 |
| Slater Small Cap | 16/07/14 | -8.6% | -4.3% | -4.5% | 19.9% | 13.7% | 5.5% | 19.9% | 13.7% | 5.5% | Jun-13 | FTSE Small Cap/Aim All-Share |
| Genuine Value Small Caps | 10/06/14 | -11.4% | -6.6% | -5.1% | 47.7% | 14.4% | 29.1% | 47.7% | 14.4% | 29.1% | May-13 | FTSE Small Cap/Aim All-Share |
| Greenblatt | 04/02/14 | -1.1% | 4.4% | -5.3% | 28.5% | 10.6% | 16.2% | 79.7% | 27.6% | 40.8% | Jan-11 | FTSE All-Share |
| Inflation Beaters | 15/01/14 | -9.5% | -1.0% | -8.5% | 31.2% | 16.7% | 12.4% | 60.0% | 29.3% | 23.7% | Jan-12 | FTSE 350 |
| Piotroski | 07/01/14 | -8.5% | 0.0% | -8.6% | 49.7% | 17.6% | 27.3% | 94.3% | 33.7% | 45.3% | Jan-12 | FTSE All-Share |
| All-Small F-Score Value Hunt | 27/08/14 | -14.6% | -1.2% | -13.6% | - | - | - | - | - | - | Nov-07 | FTSE Small Cap |
| Peter Lynch - Stalwarts | 29/04/14 | -24.0% | -1.1% | -23.2% | 65.5% | 11.0% | 49.1% | 86.0% | 29.5% | 43.6% | Apr-12 | FTSE All-Share |
| Long-term Income 2013 | 01/04/13 | - | - | - | - | - | - | 10.4% | 9.5% | 0.8% | Apr-13 | FTSE 350 |
| Long-term Income 2012 | 28/03/12 | - | - | - | - | - | - | 27.8% | 26.9% | 0.7% | Mar-12 | FTSE 350 |
| Momentum Longs | - | - | - | - | - | - | - | 98.4% | -1.8% | 102.0% | Jun-07 | FTSE 100 |
| Momentum Shorts | - | - | - | - | - | - | - | -20.7% | -1.8% | -19.2% | Jun-07 | FTSE 100 |
| Average | - | 3.3% | -1.5% | 5.1% | 24.8% | 8.5% | 14.8% | - | - | - | - | - |
| Best | - | 102.1% | - | 118.8% | 65.5% | - | 49.1% | - | - | - | - | - |
| Worst | - | -24.0% | - | -23.2% | -7.4% | - | -14.6% | - | - | - | - | - |
*To last screen date. The table is ordered by year-to-date outperformance. It covers the regular screen that I updated in 2014.
Source: Thomson Datastream
