More momentum winners

The portfolios hold shares for three months selected from the 10 best and worst performers of the previous three months. When writing up the performance of the portfolios, we face the practical problem of producing articles for a magazine with a weekly production cycle when there is no switching period built into the strategy we follow. So, as stated in the articles, we normally generate new portfolios and performance data slightly before the true period-end and then correct any differences when we next update readers. Normally, this is of little significance. However, last quarter, the small timing difference had a profound effect as the FTSE 100 clocked up a 4.5 per cent gain in the intervening days, more than doubling its performance over the quarter. What's more, this rally massively altered the make-up of the short portfolio compared with the one we published, as the surge in the market was especially prevent among what had been - until then - the dogs of the quarter.

Only three of the stocks in the last short portfolio we published (Eurasian Natural Resources, Anglo American and G4S) were actually in the official short portfolio at the official end to the quarter on 15 September. Ironically, the published portfolio did better than the amended portfolio, falling 8.5 per cent compared with a 5.6 per cent fall. The long portfolio actually benefited from the rally at the end of the period, as the replacement of Next and BAE Systems with Lloyds Banking and Weir meant its performance over the last three months was a 5 per cent increase compared with 3.6 per cent from the published portfolio.

With no practical way around the timing issues, the short portfolio published below is based on the biggest losers between the 15 September and 10 December. The write-up of the stocks in the long portfolio is selected from the best performers over the same period. As usual, we will amend our figures to account for the full period in future updates.

The shorts

The longs

ARM Holdings

ARM Holdings' shares surged around the time of its third-quarter update in October. Both royalty and licensing revenues are growing at an impressive click. In addition, there are signs that several years of growth in the region of 20 per cent could be ahead, thanks to innovations and investments made by the group, which are allowing it to win market share. As ever, ARM's shares can hardly be described as cheap, but there is clear momentum in the business as well as the share price.

Last IC view: Hold, 514p, 25 Jul 2012

Burberry

Shares in luxury goods company Burberry have experienced a strong rebound over the quarter following a profit warning shortly before the period began, which wiped 21 per cent off the company's value in a single day. The warning triggered fears that a slowdown in emerging markets economies, particularly China, would decimate the long-term growth that the market had priced in to Burberry's shares. The prospect of such a slowdown could be particularly pernicious because Burberry is not only exposed to Asian consumers through shops in the region, but also through the trend of such shoppers travelling to the west to bag flashy gear. However, subsequent trading updates and improving economic news from China has helped to improve sentiment substantially.

Last IC view: Sell, 1.259p, 7 Nov 2012

Tate & Lyle

First-half numbers from Tate & Lyle last month were rather underwhelming, but there is still plenty of promise coming from the company. While its bulk ingredients business, which produces items such as corn sweeteners, faces headwinds, about half of profits now come from speciality products. The speciality business, which produces sweetener Splenda, should continue to benefit from innovation and there is excitement about the launch of a salt-reduction ingredient called SODA-LO. The company has also recently arranged a type of pension liability insurance with L&G, which should help sentiment about its pension deficit.

Last IC view: Buy, 722.5p, 8 Nov 2012

Lloyds Banking

Lloyds was one of the two stocks that snuck into last quarter's long portfolio due to the 'risk-on' rally that occurred between the writing and publication of our article. The market has been impressed by Lloyds' recent aggressive approach to selling off problem assets such as a recent sale of Irish loans at 10p in the £1. The group is also benefiting from increasing confidence about the state of the eurozone. But it remains under the cloud of regulatory pressures to increase capital and the ongoing weight of compensation payments for past misdeeds. True, the stock put in a strong performance last quarter, but banks always represents a risky bet due to the yo-yo nature of their share prices.

Last IC view: Sell, 28.6p, 26 Jul 2012

ITV

Based on its recent third-quarter update, broadcaster ITV is facing a tougher than expected advertising market. But the group's transformation strategy continues to produce better than expected results. Indeed, analysts reckon any disappointments from weak advertising revenues will be made up for by higher cost savings. What's more, the company's investment in ITV Studios continues to produce superb results. ITV is also having success in the online market and the business is supported by a strong balance sheet. There is a dearth of major advertising-generating events in 2013, but the recovery story remains attractive.

Last IC view: Buy, 74.5p, 27 Jul 2012

Standard Life

Shares in Standard Life are in the long portfolio for a second quarter on the trot. There is a lot going for the company following its three-year restructuring programme. The most noteworthy benefit investors have seen to date is a substantial drop in customer acquisition costs following a hefty investment in new technology. Standard Life also looks like one of the best-placed players to benefit from forthcoming regulatory changes in the form of RDR and auto-enrolment. What's more, the company recently revealed that property sales in Canada and changes to reinsurance arrangements will boost profits by £75m this year. As well as the exciting prospects based on regulatory change, the shares offer a very attractive yield.

Last IC view: Buy, 274p, 14 Aug 2012

Associated British Foods

Associated British Foods recently reported on a bumper financial year that was boosted by very strong sugar yields - sugar accounts for 45 per cent of operating profits. While this is unlikely to be repeated, there are plenty of other reasons to be positive on prospects. The expansion of the group's Primark value-clothing chain into Europe offers significant long-term growth potential. The sugar business is also growing through the sale of so-called 'co-products', and there are hopes for an improvement in the profitability of the grocery business, which owns brands such as Twinning and Ovaltine. Meanwhile, the completion of some major investments in growth areas should help boost the company's cash flow.

Last IC view: Hold, 1,359p, 6 Nov 2012

Intertek

Global testing and standards business Intertek boasts a long-term structural growth story as demand for its services benefits from the ongoing march of regulatory and technological change. While this gives the stock many defensive merits, its business is also linked to the level of world trade. This was apparent when it reported a 10-month trading update, which showed organic growth had slowed from 9.9 per cent in the first half to 9.1 per cent. But with the City's mood brightening towards the global economic outlook, Intertek's shares have started shooting ahead in recent weeks.

Last IC view: Hold, 2,836p, 26 Jul 2012

Hargreaves Lansdown

Wealth management company Hargreaves Lansdown is another repeat entry in the long portfolio. Its success at attracting new customers, reflected in a 8.4 per cent first-quarter rise in assets under administration (AuA), is a reflection of the company's firm focus on customer service and its Vantage trading platform. The company looks well prepared for RDR as it already complies with most of the regulatory criteria and when it provides advice it charges a fee rather than taking commission. Hargreaves Lansdown is also a beneficiary of the trend towards do-it-yourself self-invested personal pensions (Sipps).

Last IC view: Hold, 633p, 5 Sep 2012

IMI

The weak global economy is making life hard for engineer IMI, but the market has been impressed with signs from recent trading that the group is making progress. Cost savings and pricing improvements are helping to buoy the group, as is growth in the severe services division, which is exposed to the oil and gas industry, and merchandising. Meanwhile, the group's strong balance sheet means analysts expect management to step up acquisitions in order to support overall growth.

Last IC view: Hold, 872p, 23 Aug 2012