Something exciting is starting to happen to a number of my stock screens: they're turning five. The significance the finance industry puts on five-year performance records is somewhat arbitrary, but nevertheless a five-year record is generally seen as a point at which the performance produced by a given strategy should be given some credence. The first of my long-running screens to celebrate its fifth birthday is my Monsters of Momentum screen, which I am reviewing this week.
Over the past year the screen has enjoyed another 12 months of outperformance, delivering a total return of 29.8 per cent from seven stocks, compared with 2.0 per cent from the FTSE All-Share. And over that oh-so-important five-year period the screen has also done extremely nicely, producing a 160 per cent cumulative total return (based on wholesale moves from one portfolio of screen results to the next each time a new screen is published), compared with 35.3 per cent from the index. If I factor in a 1.5 per cent charge for dealing costs, the cumulative total return drops to 142 per cent.
| Name | TIDM | Total return (29 Oct 2014 - 16 Nov 2015) |
|---|---|---|
| Marshalls | MSLH | 72.9% |
| Dignity | DTY | 62.1% |
| Carnival | CCL | 49.1% |
| Persimmon | PSN | 35.3% |
| John Laing Infra Fund | JLIF | 0.6% |
| Ashtead | AHT | -0.8% |
| SkyPharma | SKP | -10.9% |
| Average | - | 29.8% |
| FTSE All-Share | - | 2.0% |
Source: Thomson Datastream
It is also gratifying to note that this screen has outperformed the market in each of the five years I've run it.
| Year to Nov/Oct | FTSE All-Share | Monsters of Momentum |
|---|---|---|
| 2011 | -2.9% | 4.1% |
| 2012 | 10.5% | 18.5% |
| 2013 | 22.4% | 44.3% |
| 2014 | -1.1% | 12.8% |
| 2015 | 2.0% | 29.8% |
Source: Thomson Datastream
But despite the seeming consistency of the screen, I personally think it needs to be seen as high-risk. What's more, this particular screen really needs to be seen in the context of the bull market of the past five years. That's because the screen's performance record comes with whopping beta - a measure of the sensitivity of the screen's performance to the broader market - of 2.9. This is the kind of thing one would expect from an aggressive momentum screen that looks to profit from sustained market trends.
When looking at the performance of the screen over the five years it is also important to note that I've had to tamper with its criteria to keep it producing results. Indeed, last year I only required stocks to pass three of the screen's four tests in order to generate any results. All the shares had to pass the price momentum test, but could fail to meet any one of the other criteria.
This year, I've once again had to relax the screening criteria to get more than one positive result (Sepura). Fortunately, I can be a bit stricter than I was last year as I am insisting that stocks pass both the price momentum and trend tests to make the grade. The full screening criteria are:
■ Price momentum: A share price rise in the top 10 per cent of shares screened over the past three months, in the top 25 per cent over six months, and in the top 50 per cent over a year. ■ Trend: The 10-day moving average must be above the 30-day, which in turn must be above the 100-day. ■ Earnings growth: Average forecast earnings growth for the next two financial years must be among the top quarter of all stocks screened. ■ Volume: Average daily volumes over the past three months must be above the level from a year ago. |
Eighteen stocks made the grade based on the weakened criteria (stocks currently in takeover situations have been excluded from the line-up). All the screen's picks are detailed in the table below, while I've also provided write-ups of five stocks: the only stock to pass all four screening tests and the four stocks showing the strongest three-month momentum.
HERE BE MONSTERS
| Name | TIDM | Mkt cap | Price | Fwd NTM PE | DY | PEG | P/ BV | FY EPS gr+1 | FY EPS gr+2 | 3-mth mom | 6-mth mom | 1-yr mom | Net cash/ debt (-) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Avon Rubber | AVON | £345m | 1,151p | 23 | 0.5% | 2.6 | 10.6 | 17.4% | 6.5% | 35.0% | 45.7% | 70.3% | £7m |
| OneSavings Bank | OSB | £942m | 387p | 11 | 1.0% | 0.7 | 3.4 | 39.5% | 6.1% | 30.8% | 27.0% | 87.8% | £169m |
| NCC | NCC | £656m | 286p | 24 | 1.4% | 1.8 | 5.0 | 25.5% | 12.2% | 22.0% | 36.0% | 48.1% | -£51m |
| Regus | RGU | £3.2bn | 340p | 27 | 1.2% | 1.2 | 5.9 | 50.6% | 18.1% | 21.1% | 27.5% | 74.3% | -£155m |
| Hargreaves Lansdown | HL. | £6.8bn | 1,438p | 37 | 2.3% | 2.5 | 28.7 | 16.9% | 15.8% | 20.0% | 18.4% | 37.5% | £218m |
| Provident Financial | PFG | £5.1bn | 3,576p | 21 | 2.7% | 1.8 | 8.8 | 22.8% | 6.7% | 19.6% | 14.5% | 69.2% | -£1.4bn |
| FDM | FDM | £564m | 525p | 25 | 3.0% | 3.0 | 12.8 | 19.3% | 7.0% | 14.6% | 50.3% | 55.4% | £14m |
| Sepura | SEPU | £328m | 178p | 20 | 1.3% | 0.8 | 3.9 | 31.0% | 17.7% | 13.4% | 18.3% | 32.2% | -€1m |
| Rank | RNK | £1.1bn | 277p | 18 | 2.0% | 2.6 | 3.7 | 7.2% | 6.2% | 11.9% | 37.5% | 71.7% | -£54m |
| JD Sports Fashion | JD. | £1.9bn | 963p | 20 | 0.7% | 1.6 | 5.9 | 26.4% | 6.5% | 11.4% | 55.9% | 114% | £100m |
| MJ Gleeson | GLE | £266m | 495p | 13 | 2.0% | 1.6 | 1.9 | 14.7% | 10.9% | 10.6% | 26.1% | 49.5% | £16m |
| Capital & Regional | CAL | £485m | 69p | 21 | 1.4% | - | 1.0 | -30.6% | 5.5% | 10.3% | 19.8% | 44.8% | -£390m |
| IP | IPO | £1.4bn | 240p | 28 | - | 2.5 | 1.8 | 330% | -54.4% | 10.1% | 10.2% | 19.9% | £214m |
| Charles Taylor | CTR | £178m | 270p | 13 | 3.9% | - | 2.2 | -12.5% | 7.0% | 8.5% | 16.5% | 8.2% | £53m |
| North Atlantic SmCo | NAS | £313m | 2,165p | - | - | - | 0.9 | - | - | 7.9% | 16.9% | 29.3% | £53m |
| Beazley | BEZ | £1.8bn | 362p | 14 | 5.8% | - | 2.1 | 10.0% | -10.5% | 7.4% | 24.8% | 40.3% | $132m |
| Headlam | HEAD | £427m | 506p | 16 | 3.5% | 2.3 | 2.4 | 10.0% | 5.0% | 6.9% | 9.2% | 24.6% | £26m |
| Lookers | LOOK | £697m | 177p | 12 | 1.6% | 1.8 | 2.4 | 6.2% | 10.3% | 6.6% | 10.9% | 25.9% | -£72m |
Source: S&P Capital IQ
