An instant winner

The underlying point was to show that stock selection based on ultra-simple rules was as likely to produce acceptable performance as selection that resulted from time-consuming, hugely-detailed research. That's because London's equity market - like any big and liquid financial market - is so thoroughly scoured that all but the most original or painstaking effort is not worth the candle: chances are, any question you ask has been asked before; any calculation has already been solved; any scenario has been thought through.

Okay, I exaggerate, but not that much. And, happily, the returns on the instant-income fund support the hypothesis. In the 13 months to mid-February, the average gain on the 11 stocks - assuming an equal weighting in each - was almost 11 per cent while the FTSE All-Share index rose just less than 2 per cent (see table). Simultaneously, the 11 would have generated usefully more income than the All-Share - a 5 per cent dividend yield compared with about 3.6 per cent from the market.

True, one year's result is hardly conclusive, but it points the right way and shows what can be produced from a portfolio of unprepossessing components. You would think that any 11-stock portfolio that included GlaxoSmithKline (GSK), Tesco (TSCO) and Centrica (CNA) would be hobbled before it began; and that makes no mention of the worst performer, bookmaker Ladbrokes (LAD).

The secret - if there is one - is that, when selected, none of the 11 looked as if it carried existential risks, such as unbearable debt, persistent losses or an unproven business plan. Most were dull and worthy and even the raciest, Amino Technologies (AMO), did - and does - nothing more dangerous than supply equipment and services for TV over the internet. Meanwhile, the 11 looked decently diversified - the likes of Amino, Japan Residential Investment Company (JRIC) and Carillion (CLLN) were always likely to dance to tunes that produced little response from, say, Glaxo, Tesco or Imperial Tobacco (IMT).

Instant income portfolio 2014

As to the criteria that got stocks considered for inclusion, they could not have been simpler - a dividend yield of 1.2 times the All-Share average and dividends covered at least 1.8 times by earnings. From approaching 1,500 stocks in both the All-Share and the FTSE Aim All-Share index - and despite the minimalism of the criteria - just 49 stocks made the cut. Avoiding duplicated activities and focusing on financial solidity whittled those down to the final 11.

This year, the 11 look as unappealing as last year's bunch - a mixture of mostly the unloved and the misunderstood. None trades on a price-earnings multiple of much more than 12 times (the highest rated is construction group Morgan Sindall (MGNS), whose shares trade on 12.2 times) and shares in six of them trade on single-figure earnings multiples. Simultaneously, none is overburdened with debt. Three carry net cash - Morgan Sindall, Lloyd's insurer Beazley (BEZ) and engineering projects investor 3i Infrastructure (3IN). Even the most indebted - retailer Debenhams (DEB) and coal merchant Hargreaves Services (HSP) - carry net debt of less than 40 per cent of the market value of their equity.

Let's see how they progress. Most of all, however, I'm hoping one or two will make serious candidates for the Bearbull Income Portfolio, the portfolio that really matters, and intuition points me towards oilfield services provider Petrofac (PFC) and Hargreaves.

Instant income portfolio 2015

Source: S&P Capital IQ