Of the many innovations of the index tracker fund, market weighting might be its greatest feature. By allotting shares in proportion to the size of its constituents, your standard equity index exchange traded fund (ETF) benefits from momentum and automatically sifts a market’s winners from its losers in real time. In the process, the hard yards of research, stock selection, and portfolio weighting are all removed.
But it’s important to know what this misses out. And what an index tracker certainly isn’t, is an equally weighted balance of investment styles.
Indeed, style is a bit of a misnomer when it comes to the diversified equity index.
The FTSE 100 might have a reputation as a ‘value’ index full of cheap companies. By contrast, the S&P 500 has become a synonym for expectation-laden ‘growth’ stocks, thanks in large part to the stratospheric rise of a handful of technology giants over the past decade. But each index is too varied and unselective to be described as an alpha-focused approach to investing. By definition, buying the index means settling for beta returns.
However, the benefits of diversification needn’t come at the expense of a more granular, quantitative approach. At least that’s the idea behind our Screen for all Seasons, which uses six different investing styles in parallel to build a 60-stock portfolio. By backing the best-looking stocks in each style – from momentum-driven growth to deep value and income – our six-in-one screen seeks to make best use of each approach without trying to predict its relative success.
The screen has now beaten its benchmark for the past three years. In the most recent period, this was thanks to its one-third weighting to two deep value-based approaches to investing – the EV/Sales and CAPE screens – which again led the returns (see chart).
12-Month Performance | |||
Screen | Name | TIDM | Total Rtn (27 Apr 2021 - 20 Apr 2022) |
GRT EXP | Tremor International | TRMR | -29% |
GRT EXP | Cerillion | CER | 33% |
GRT EXP | Tpximpact* | TPX | -24% |
GRT EXP | Pendragon | PDG | 26% |
GRT EXP | Netcall | NET | -28% |
GRT EXP | Ti Fluid Systems | TIFS | -45% |
GRT EXP | Sureserve | SUR | 4% |
GRT EXP | Clipper Logistics | CLG | 27% |
GRT EXP | Griffin Mining | GFM | -12% |
GRT EXP | Inspecs | SPEC | -7% |
GRT EXP | - | - | -5% |
BIG REL | Boohoo | BOO | -74% |
BIG REL | Games Workshop | GAW | -26% |
BIG REL | Cranswick | CWK | 0% |
BIG REL | Hilton Food | HFG | 1% |
BIG REL | Sdi | SDI | -12% |
BIG REL | Macfarlane | MACF | 7% |
BIG REL | Astrazeneca | AZN | 42% |
BIG REL | Diageo | DGE | 22% |
BIG REL | Relx | REL | 28% |
BIG REL | Compass | CPG | 10% |
BIG REL | - | - | 0% |
NEFF | Best Of The Best | BOTB | -85% |
NEFF | Clipper Logistics | CLG | 27% |
NEFF | Gamma Communications | GAMA | -30% |
NEFF | Rbg | RBGP | -21% |
NEFF | Belvoir | BLV | 29% |
NEFF | Central Asia Metals | CAML | 1% |
NEFF | Michelmersh Brick | MBH | -11% |
NEFF | IG | IGG | -6% |
NEFF | Rathbones | RAT | 24% |
NEFF | Clinigen** | CLIN | 13% |
NEFF | - | - | -6% |
SAFE YLD | Polymetal International | POLY | -84% |
SAFE YLD | moneysupermarket.com | MONY | -31% |
SAFE YLD | James Halstead | JHD | 1% |
SAFE YLD | Polar Capital | POLR | -20% |
SAFE YLD | Devro | DVO | 12% |
SAFE YLD | Smart Metering Systems | SMS | 8% |
SAFE YLD | Rathbones | RAT | 24% |
SAFE YLD | Glaxosmithkline | GSK | 37% |
SAFE YLD | Telecom Plus | TEP | 24% |
SAFE YLD | Unilever | ULVR | -11% |
SAFE YLD | - | - | -4% |
EV/SALES | Enwell Energy | ENW | 28% |
EV/SALES | H&T | HAT | 26% |
EV/SALES | Tp Icap | TCAP | -37% |
EV/SALES | Ramsdens Hldgs | RFX | 10% |
EV/SALES | Flowtech Fluidpower | FLO | 17% |
EV/SALES | Sthree | STEM | -2% |
EV/SALES | Marshall Motor | MMH | 133% |
EV/SALES | Computacenter | CCC | 14% |
EV/SALES | Xpediator | XPD | -46% |
EV/SALES | Midwich | MIDW | 33% |
EV/SALES | - | - | 18% |
CAPE | Appreciate | APP | -39% |
CAPE | Card Factory | CARD | -44% |
CAPE | Caledonia Mining | CMCL | 18% |
CAPE | Ninety One | N91 | 16% |
CAPE | Stagecoach | SGC | 6% |
CAPE | Photo-Me International | PHTM | 9% |
CAPE | Marshall Motor | MMH | 133% |
CAPE | NWF | NWF | 2% |
CAPE | Tate & Lyle | TATE | 1% |
CAPE | Vertu Motors | VTU | 22% |
CAPE | - | - | 12% |
FTSE All Share | - | 10% | |
FTSE Aim All Share | - | -16% | |
FTSE All Share/Aim | - | -3% | |
Screen For All Seasons | - | 2% | |
Source: Thomson Datastream. *Formerly Panoply. **Delisted 5/4/22. |
Overall, the 60 stocks selected by the six screens last year delivered a 2.4 per cent total return. That was far below 2020’s bumper crop, which returned 43.2 per cent, but was roughly similar in terms of benchmark outperformance: in 2020-21 the screen came in ahead of the FTSE All-Share/Aim hybrid by 6.8 percentage points, while this time the gap was 5.6 percentage points.
Although this is nothing to write home about – particularly with inflation running so hot – the screen’s long-term track record has been reasonable. In five years of running the screen, annual total returns have averaged 8 per cent – or roughly double the All-Share/Aim composite – suggesting that combining several best-in-class stock selection styles at one time needn’t result in mean reversion.
While the ideas from the screens on these pages are intended as a source for further research rather than off-the-shelf portfolios, incorporating a 1.5 per cent annual dealing charge would have resulted in a drop in the five-year return from 42.6 to 32.2 per cent. Following a down year, the benchmark return over that period has dipped to 18.4 per cent.
Each of the six screens uses a ranking system to create a selection of 10 stocks. When there are not 10 stocks that meet a screen’s full criteria, a weakened version of the test is employed. Details of any tests failed are given in the accompanying table of stock picks. Full details of the criteria of each screen can be found below along with the ranking methodology. All screens are conducted on all the constituents of the FTSE 350, FTSE All Small and FTSE Aim All-Share. Several of the screens have tests to remove companies below a certain size.
The screens
Great Expectations (Growth and Momentum)
■ EPS forecasts for both the next 12 months and the following 12-month period upgraded by at least 10 per cent over the last year.
■ EPS growth of 10 per cent or more forecast for each of the next two financial years.
■ Share price momentum at least double that of the market over the past year and better than the market over the past six months, three months and one month.
Additional filter
■ The most attractive stocks have been selected based on a combined ranking of EPS upgrades and three-month price momentum.
Big Reliable (Quality)
■ EPS growth in each of the past five years.
■ Return on equity (RoE) of 12 per cent or more in each of the past five years.
■ Forecast earnings growth in the current financial year and the year after.
■ Gearing of less than 50 per cent, or net debt of less than two times cash profits.
■ Cash conversion (cash from operations as a proportion of operating profits) of 90 per cent or more.
Additional filter
■ 10 largest market caps
Neff (Growth at a Reasonable Price)
■ Historic price/earnings ratio (PE) below the most expensive quarter of shares and above the cheapest quarter.
■ A lower than median average Neff PEG ratio:
Neff PEG is calculated as the price/earnings (PE) ratio divided by EPS growth (an average of the five-year compound average growth rate and average forecast for the next two years) and historic dividend yield.
■ A five-year EPS compound average growth rate (CAGR) of more than 7.5 per cent, but below 20 per cent (excessive growth can fall off).
■ Average forecast EPS growth for the next two financial years of more than 7.5 per cent.
■ Rising EPS in each of the past two half-year periods.
■ Five-year turnover CAGR of 5 per cent or more (in the long term, earnings growth needs to be based on rising sales).
■ Positive free cash flow in each of the past three years.
Additional filter
■ The most attractive stocks have been selected based on combined ranking of Neff PEG and the EPS growth rate used in the ratio.
Safe Yield (Income)
■ Dividend yield of at least 3 per cent.
■ Dividend cover of at least two times.
■ Interest cover of at least five times.
■ Dividend growth in each of the past three years.
■ Forecast earnings growth in each of the next two financial years.
■ An average return on equity over the past three years of at least 12.5 per cent.
■ Cash conversion (measured as cash from operations as a percentage of operating profit) of over 100 per cent.
■ A market capitalisation of at least £250m.
■ Beta of 0.75 or less.
Additional filter
■ The most attractive stocks have been selected based on combined ranking of dividend yield and forecast average EPS growth over the next two financial years.
EV/Sales screen (Recovery)
■ EV/Sales of less than 1.
■ Five-year compound average annual sales growth rate of 7 per cent or more.
■ Forecast sales growth in each of the next two financial years.
■ An average operating profit margin of at least 10 per cent over the past five years.
■ Positive free cash flow.
■ Gearing of less than 50 per cent, or net debt of less than two times cash profits.
Additional filter
■ The most attractive stocks have been selected based on combined ranking of EV-to-sales and historic operating margins.
CAPE (Deep Value)
■ Market capitalisation of more than £100m.
■ Net debt less than 2.5 times cash profits.
■ Average five-year operating cash conversion of more than 100 per cent or average five-year free cash conversion of more than 90 per cent.
Additional filter
■ Top 10 out of the 50 lowest-CAPE shares (excluding shares with suspiciously low CAPEs of 3 or less) are selected based on their combined ranking for CAPE and five-year average return on capital employed.
CAPE stands for cyclically adjusted PE ratio. It compares share price with average 10 year EPS to try to get an impression of earnings over an entire business cycle.
The stocks
An abridged version of this year’s 60 stocks is included in the table below. Lots more fundamental data and forecasts can be found in the downloadable excel version of the table here:
SCREEN | TEST FAILED | Name | TIDM | Mkt Cap | Net Cash / Debt(-)* | Price | Fwd PE (+12mths) | Fwd DY (+12mths) | FCF yld (+12mths) | EV/Sales | CAPE | PEG | ROCE | Fwd EPS grth NTM | Fwd EPS grth STM | 3-mth Mom | 12-mth Fwd EPS change% |
GRT EXP | / | Drax | DRX | £3,151m | -£1,170m | 787p | 10 | 2.7% | 8.1% | 0.9 | 82.8 | 0.1 | 17.2% | 120% | 39% | 37.3% | 149.8% |
GRT EXP | / | Cambridge Cognition | COG | £51m | - | 163p | 82 | - | -3.4% | 4.4 | - | 4.0 | - | 29% | 17% | 38.3% | 182.2% |
GRT EXP | / | Digitalbox | DBOX | £16m | £2m | 14p | 15 | - | 7.1% | 3.9 | - | 0.5 | 4.8% | 84% | 29% | 21.6% | 115.2% |
GRT EXP | / | Indivior | INDV | £2,300m | £602m | 326p | 19 | - | 6.4% | 3.3 | 15.8 | 0.8 | 43.2% | 21% | 27% | 39.7% | 62.6% |
GRT EXP | / | Ebiquity | EBQ | £85m | -£11m | 71p | 12 | 0.6% | - | 1.1 | - | - | 5.8% | 66% | 23% | 23.7% | 78.5% |
GRT EXP | / | Next Fifteen Comms | NFC | £1,328m | £3m | 1,364p | 18 | 1.1% | 5.6% | 2.7 | - | 4.8 | 27.8% | 21% | 14% | 21.2% | 58.9% |
GRT EXP | / | Northbridge Industrial | NBI | £57m | -£3m | 198p | 16 | 1.2% | 0.0% | 2.0 | - | - | 10.9% | 51% | 8% | 15.5% | 119.3% |
GRT EXP | / | Alpha FX | AFX | £945m | £104m | 2,240p | 35 | 0.6% | - | 11.1 | 106.2 | 3.7 | 32.1% | 11% | 7% | 17.9% | 62.4% |
GRT EXP | / | Gresham House | GHE | £373m | £38m | 975p | 17 | 1.6% | 1.9% | 4.4 | - | 1.9 | 10.7% | 11% | 15% | 9.2% | 61.4% |
GRT EXP | / | H&T | HAT | £144m | -£1m | 360p | 10 | 4.2% | - | 1.2 | 14.7 | 0.6 | 5.9% | 43% | 25% | 21.4% | 46.1% |
BIG REL | / | Cranswick | CWK | £1,894m | -£87m | 3,562p | 16 | 2.2% | 4.6% | 1.0 | 30.9 | 4.1 | 16.0% | 2% | 0% | -3.3% | 12.1% |
BIG REL | / | Hilton Food | HFG | £1,062m | -£328m | 1,194p | 18 | 2.7% | 5.2% | 0.4 | 34.8 | 4.3 | 9.3% | 5% | 6% | 12.6% | 9.0% |
BIG REL | / | Team17 | TM17 | £705m | £53m | 488p | 20 | - | 4.6% | 6.4 | 55.5 | 3.7 | 24.9% | 6% | 10% | -34.7% | 20.1% |
BIG REL | / | Macfarlane | MACF | £199m | -£32m | 126p | 11 | 2.7% | - | 0.9 | 24.9 | 0.7 | 15.8% | 26% | 1% | -1.9% | 24.8% |
BIG REL | / | SDI | SDI | £169m | -£1m | 165p | 23 | - | 4.6% | 3.8 | 111.0 | 2.6 | 19.5% | 0% | 0% | -7.8% | 2.7% |
BIG REL | /5y EPS Grth/ | AstraZeneca | AZN | £162,755m | -£18,002m | 10,504p | 19 | 2.2% | 4.7% | 6.1 | 72.9 | 3.4 | 5.3% | 27% | 18% | 20.0% | 30.8% |
BIG REL | /5y EPS Grth/ | GlaxoSmithKline | GSK | £88,704m | -£19,838m | 1,745p | 14 | 3.0% | 7.9% | 3.4 | 20.4 | 2.1 | 18.3% | 7% | 8% | 5.9% | 20.9% |
BIG REL | /5y EPS Grth/ | RELX | REL | £46,276m | -£6,054m | 2,399p | 23 | 2.3% | 3.8% | 7.3 | 39.2 | 2.7 | 19.7% | 12% | 10% | 6.0% | 14.5% |
BIG REL | /5y EPS Grth/ | National Grid | NG | £42,372m | -£41,141m | 1,163p | 18 | 4.6% | -2.4% | 5.5 | 18.4 | 1.6 | 5.6% | 6% | 6% | 7.3% | 7.6% |
BIG REL | /5y EPS Grth/ | Compass | CPG | £31,207m | -£2,640m | 1,749p | 26 | 1.9% | 3.9% | 1.9 | 37.1 | 1.0 | 7.7% | 50% | 19% | 4.1% | 49.7% |
NEFF | / | SEGRO | SGRO | £16,558m | -£3,437m | 1,377p | 40 | 2.0% | -1.1% | 36.6 | 14.1 | 0.7 | 1.8% | 14% | 12% | 6.2% | 20.9% |
NEFF | / | Safestore | SAFE | £2,791m | -£524m | 1,324p | 28 | 2.2% | 3.6% | 18.2 | 21.3 | 1.7 | 5.8% | 11% | 7% | 8.1% | 39.9% |
NEFF | / | Gateley | GTLY | £255m | -£21m | 214p | 13 | 4.7% | 6.4% | 2.1 | 25.6 | 1.8 | 20.8% | 14% | 3% | -5.3% | 36.7% |
NEFF | / | Dunelm | DNLM | £2,149m | -£248m | 1,062p | 13 | 4.3% | 8.1% | 1.7 | 23.7 | 1.0 | 30.7% | 3% | 0% | -17.8% | 35.8% |
NEFF | /Av FY2 Fwd EPS growth > 7.5% | Anglo American | AAL | £49,209m | -£2,777m | 3,679p | 7 | 6.0% | 10.4% | 1.8 | 44.7 | - | 41.7% | -7% | -19% | 7.3% | 22.2% |
NEFF | /Av FY2 Fwd EPS growth > 7.5% | Man | EMG | £3,198m | £101m | 238p | 10 | 4.8% | - | 3.0 | 44.8 | - | 32.5% | -10% | 7% | 14.5% | 68.6% |
NEFF | /Av FY2 Fwd EPS growth > 7.5% | Antofagasta | ANTO | £14,985m | £399m | 1,520p | 16 | 4.6% | 3.9% | 3.0 | 36.3 | - | 31.5% | -7% | 3% | 4.8% | 3.1% |
NEFF | /HY EPS grth/ | ContourGlobal | GLO | £1,266m | -£2,833m | 193p | 25 | 8.1% | 15.6% | 2.7 | 51.8 | 2.4 | 8.0% | 12% | 5% | 4.4% | -27.6% |
NEFF | /Av FY2 Fwd EPS growth > 7.5% | Computacenter | CCC | £3,294m | £95m | 2,886p | 17 | 2.4% | 6.3% | 0.5 | 37.0 | 18.1 | 28.7% | 0% | 3% | 7.0% | 28.5% |
NEFF | /HY EPS grth/ | Ashtead | AHT | £21,383m | -£5,138m | 4,817p | 18 | 1.3% | 3.0% | 4.8 | 47.6 | 0.8 | 14.3% | 20% | 14% | -6.1% | 55.4% |
SAFE YLD | / | Moneysupermarket.com | MONY | £943m | -£77m | 176p | 13 | 7.2% | 8.2% | 3.2 | 15.0 | 1.2 | 28.8% | 12% | 19% | -12.6% | -2.6% |
SAFE YLD | / | Devro | DVO | £351m | -£90m | 211p | 11 | 4.6% | 8.3% | 1.8 | 27.5 | 2.9 | 18.9% | 3% | 5% | -2.3% | 8.1% |
SAFE YLD | / | BAE Systems | BA | £23,360m | -£3,245m | 741p | 14 | 3.6% | 5.9% | 1.4 | 23.5 | 2.0 | 14.9% | 7% | 7% | 24.2% | 4.9% |
SAFE YLD | /Mkt Cap/ | Record | REC | £131m | £17m | 66p | 14 | 5.6% | - | 3.9 | 24.3 | 0.5 | 24.3% | 7% | 6% | -12.0% | 15.6% |
SAFE YLD | /Div grth/ | Photo-Me International | PHTM | £267m | £18m | 71p | 8 | 4.8% | - | 1.2 | 11.9 | 0.4 | 14.1% | 25% | 6% | -7.1% | - |
SAFE YLD | /Int Cov/ | ContourGlobal | GLO | £1,266m | -£2,833m | 193p | 25 | 8.1% | 15.6% | 2.7 | 51.8 | 2.4 | 8.0% | 12% | 5% | 4.4% | -27.6% |
SAFE YLD | /Div grth/ | Pan African Resources | PAF | £485m | -£10m | 22p | 5 | 6.2% | 13.0% | 1.6 | 21.8 | 0.3 | 32.7% | 12% | -23% | 14.5% | 16.2% |
SAFE YLD | /RoE/ | Pets At Home | PETS | £1,512m | -£332m | 302p | 13 | 4.0% | 6.2% | 1.5 | 33.2 | 0.4 | 7.0% | 5% | 10% | -27.0% | 29.0% |
SAFE YLD | /Div grth/ | Watkin Jones | WJG | £640m | -£5m | 250p | 12 | 4.1% | 6.6% | 1.5 | 25.2 | 0.8 | 17.2% | 21% | 26% | -6.7% | 22.3% |
SAFE YLD | /Beta/ | Keller | KLR | £617m | -£193m | 848p | 8 | 4.6% | 9.7% | 0.4 | 18.3 | 1.0 | 12.6% | 10% | 7% | -5.8% | 38.2% |
EV/SALES | / | Vistry | VTY | £2,020m | £201m | 909p | 6 | 8.3% | 6.7% | 0.8 | 12.6 | 1.1 | 10.0% | 9% | 4% | -15.8% | 15.4% |
EV/SALES | / | TP ICAP | TCAP | £1,103m | -£87m | 140p | 6 | 7.8% | 10.8% | 0.6 | 13.6 | 2.0 | 5.2% | 12% | 15% | -4.8% | -28.0% |
EV/SALES | /Fwd sales grth/ | abrdn China | ACIC | £252m | £202m | 542p | - | - | - | 0.4 | 12.3 | - | 18.2% | - | - | -21.0% | - |
EV/SALES | /Fwd sales grth/ | Quilter | QLT | £2,256m | £1,765m | 138p | 17 | 3.5% | 37.8% | 0.1 | 24.9 | - | - | -14% | 17% | -8.2% | -9.5% |
EV/SALES | /Fwd sales grth/ | Numis | NUM | £303m | £113m | 268p | 16 | 5.0% | - | 0.9 | 11.8 | - | 39.3% | -45% | - | -17.8% | -53.1% |
EV/SALES | /Sales grth/ | Crest Nicholson | CRST | £684m | £249m | 266p | 7 | 6.1% | 2.6% | 0.6 | 6.4 | 0.7 | 12.1% | 12% | 8% | -19.2% | 33.6% |
EV/SALES | /Sales grth/ | Centrica | CNA | £4,735m | £485m | 80p | 9 | 4.2% | 3.0% | 0.3 | 19.6 | 1.9 | 4.2% | 69% | 12% | 13.1% | 99.4% |
EV/SALES | /Sales grth/ | Gem Diamonds | GEMD | £93m | £11m | 66p | 5 | 3.7% | 12.9% | 1.0 | - | 0.4 | 26.2% | 24% | 25% | 31.1% | 61.1% |
EV/SALES | /Sales grth/ | Bellway | BWY | £3,145m | £196m | 2,547p | 6 | 5.6% | 6.3% | 0.9 | 9.9 | 0.8 | 14.6% | 5% | 0% | -14.6% | 17.4% |
EV/SALES | /Sales grth/ | Taylor Wimpey | TW | £4,832m | £810m | 135p | 7 | 7.0% | 6.8% | 1.0 | 9.7 | 1.1 | 19.0% | 6% | 8% | -14.1% | 12.5% |
CAPE | / | Numis | NUM | £303m | £113m | 268p | 16 | 5.0% | - | 0.9 | 11.8 | - | 39.3% | -45% | - | -17.8% | -53.1% |
CAPE | / | PayPoint | PAY | £398m | -£21m | 578p | 10 | 7.0% | 12.5% | 3.1 | 11.4 | 0.2 | 22.0% | 5% | 2% | -16.4% | 6.7% |
CAPE | / | Halfords | HFD | £540m | -£233m | 247p | 7 | 4.1% | 11.2% | 0.5 | 9.1 | - | 14.9% | 0% | 8% | -27.4% | 31.6% |
CAPE | / | Photo-Me International | PHTM | £267m | £18m | 71p | 8 | 4.8% | - | 1.2 | 11.9 | 0.4 | 14.1% | 25% | 6% | -7.1% | - |
CAPE | / | Royal Mail | RMG | £3,392m | -£538m | 355p | 7 | 6.4% | 8.9% | 0.3 | 9.4 | 3.2 | 9.4% | -9% | 9% | -23.2% | 4.2% |
CAPE | / | Kingfisher | KGF | £5,437m | -£1,569m | 269p | 9 | 4.5% | 5.4% | 0.5 | 12.0 | - | 11.6% | -14% | 6% | -17.6% | 10.4% |
CAPE | / | Currys | CURY | £1,098m | -£977m | 97p | 7 | 4.2% | 20.6% | 0.2 | 4.9 | 0.6 | 7.4% | 30% | 21% | -2.6% | 9.1% |
CAPE | / | BT | BT.A | £18,697m | -£18,763m | 188p | 9 | 4.1% | 6.0% | 1.8 | 8.4 | 2.0 | 8.1% | 4% | -5% | -0.2% | 4.9% |
CAPE | / | Ninety One | N91 | £1,630m | £258m | 262p | 14 | 5.3% | 7.2% | 2.7 | 16.7 | 2.0 | 75.4% | 0% | 7% | -0.8% | 9.2% |
CAPE | / | Vistry | VTY | £2,020m | £201m | 909p | 6 | 8.3% | 6.7% | 0.8 | 12.6 | 1.1 | 10.0% | 9% | 4% | -15.8% | 15.4% |
Source: FactSet; *FX converted to £; NTM = next 12 months / STM = second 12-month period |