Momentum blue chips thrash FTSE

The shorts may not have done as well as the longs, but nevertheless they have underperformed the index (underperformance is what we're looking for from this portfolio) and are down 25 per cent. However, that overall figure disguises some interesting variations, and the performance in 2012 underlines the fact that momentum investing is not one that delivers consistently. This year's Jekyll-and-Hyde markets have played havoc with the strategy; we bought 'risk-on' winners from the first quarter, only to see risk taken off the table in the second.

So the last three months have seen a high-risk long portfolio fall 12.9 per cent while the more defensive short portfolio fell just 4.1 per cent - compared with a 7.4 per cent drop by the FTSE 100.

This is not the first time in the past five years that the momentum strategy has delivered poor results in a short period - and underlines the fact that momentum is a long-term strategy (research from Credit Suisse and the London Business School suggests its been outperforming for over a century!).

We cannot know whether the eurozone's problems will be fixed or a Chinese hard-landing avoided, but for better or worse, here are the momentum stocks for the third quarter - an interesting mix of the obviously defensive and the cyclical.

THE STOCKS

Croda International

Chemicals company Croda International made a robust start to the year and produced record first quarter results thanks to strong demand from the cosmetics industry. The consumer care division has also made encouraging progress pushing its margins higher. The industrial chemicals division is having a tough time but it accounts for only 2 per cent of group operating profit. Rising input prices are a concern. Last IC View: Buy, 2,278p, 30 Apr

source: S&P Capital IQ

Vodafone

Once a racy growth stock, the chief attraction at Vodafone these days is the yield and an aspiration to grow the dividend at 7 per cent a year. Weak trading in some European countries is a concern, but has been offset by progress in markets like the US and India, and data revenues continue to increase. Last IC View: Buy, 168p, 22 May 2012

Carnival

High oil prices and the Costa Concordia disaster made for a miserable start to the year at the cruise ship operator. But with oil prices now in retreat, excess capacity being addressed and pricing being supported, the outlook is gradually improving. The gloomy outlook for consumer spending is a concern, though. Last IC View: Sell, 1,841p, 29 Feb 2012

Diageo

Recent plans for big investment in whisky distilling underling the defensive qualities of drinks giant Diageo, whose brands generally sit at the premium end of the market. Trading in Europe has been weak recently, but the outlook in the US and emerging markets - where there is plenty of acquisition potential - is better. Last IC View: Buy, 1,611p, 4 May 2012

Bunzl

Bunzl is boring - but that's just what many investors want, hence the share-price rise that has propelled it into the momentum portfolio. The food packaging company has very defensive end markets and a sound track record of meeting market expectations. It's also a serial acquirer in a fragmented industry. Last IC View: Hold, 946p, 28 Feb 2012

Next

Clothing retailer Next is a cyclical stock, but one thing it shares with Bunzl is a commendable record of under-promising and over-delivering. The high street is tough, but the catalogue business is doing well and the company has always managed stock and margins well. Input cost pressures, particular cotton, are easing too. Last IC View: Buy, 2,983p, 4 May 2012

Intertek

The product-testing and quality-control industry benefits from ever-rising regulatory standards, and this provides a strong, non-cyclical tailwind for Intertek's business. The company has also recently been benefiting from the effect of a large acquisition in the oil & gas testing market, Moody, last year. The shares are highly rated, though. Last IC View: Hold, 2,398p, 5 Mar 2012

United Utilities

You know investors are really nervous when utility stocks are among the best-performing shares on the market. Water company United Utilities looks particularly safe at the moment, mid-way through the regulatory cycle with inflation-linked revenue and a road-map for dividend increases. The shares are at a year high. Last IC View: Buy, 629p, 24 May 2012

Whitbread

Costa Coffee has been driving the growth over recent years, and there are ambitious plans for the continued expansion of Costa both at home and overseas as well as the roll out of high-end, self-service, Costa-branded coffee machines. The performance of the group’s hotel and restaurants division has been less impressive though - and their resilience could be tested in the months ahead. Last IC View: Hold, 1,882p, 27 Apr 2012

Severn Trent

Severn Trent’s UK water business continues to tick over nicely, so much so that it announced a 62p special dividend when it reported full-year results a few weeks ago. However, the group has businesses in Spain and Italy which are being affected by the economic ructions in those economies. Last IC View: Hold, 1,664p, 30 May 2012