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The No-Thought portfolio 2.0

Our long-running quarterly rotation portfolio is in new hands
The No-Thought portfolio 2.0

You might think the handover of the Investors’ Chronicle’s No-Thought portfolio would need little if any explanation. If thinking isn’t required, then what is there to say?

However, the quarterly six-in-one stock screen – formerly known as Chris Dillow’s Benchmark Portfolio after our long-serving and recently retired economics writer – is itself the product of plenty of thoughts, assumptions, research, and judgment. At some level, any choice involves thought.

Chris, like any good Marxist, would surely recognise that a claim to preference-free objective reason is itself a form of ideology. But I digress.

At its core, the no-thought portfolio is a mishmash of several of the investing styles that regularly appear in our weekly stock screens. Of its six sets of criteria, two are given over to momentum investing, one to value, another to blue-chips, and a further two are based on measures of volatility. Four times a year, and drawing from the constituents of the FTSE 350, each category’s best or worst performing 20 stocks from the previous quarter are selected, and the portfolio is re-set.

The portfolio has been fixed along these lines for several years, having evolved out of the portfolios Chris began to track in 2004. In its current form, it has something in common with our Screen for all Seasons, which seeks to capture a balanced large stock portfolio through a mix of value, growth, income investing styles, and shares a few features with our more concentrated Strategy Screen, though this switches its criteria depending on what is working.

As the portfolio’s new steward – and having pored over the past decade of results – I feel it’s worth sharing my thoughts on the portfolio, and the ways I think its results might be improved.



A good starting point with any portfolio is to ask if its size, distribution and upkeep help to serve what it is set up to do. For my money, the No-Thought portfolio as it is currently conceived is overly labour-intensive. While we do not advocate treating the stock screens in these pages as off-the-shelf portfolios, and while the No-Thought portfolio was devised to illustrate how mechanical selection could beat active stockpicking, the sheer volume of buying and selling required to replicate our No-Thought strategy would be immense.

If an investor were to refresh the portfolio in line with its criteria, she would need to trade in and out of as many as 120 positions – which means up to 240 buy, sell or short executions every three months, or nearly a thousand a year. While this might be doable on commission-free investment platforms such as Freetrade, dealing costs would quickly rack up on most platforms, and suck up a lot of time in the process.

This leads me to think the portfolio might be too big and suffer from over-diversification.

In theory, while a greater number of stocks lowers exposure to risks that might arise from individual sectors, at a certain point it will limit overall returns. Even if the portfolio is better viewed as a group of six strategies than 120 short-term stock ideas, it is possible that by taking positions in a third of an index’s constituents, performance will revert to the mean.

That could be a problem, given the portfolio’s core aim is to consistently beat the FTSE 350.

However, it is hard to know where the balance lies. By comparing the results of the No-Thought portfolio to our blue-chip momentum screen, it seems a quarterly positive momentum strategy that draws a greater number of UK stocks (20 rather than 10) from a wider index (the FTSE 350 rather than the FTSE 100) does better over time. But is this due to a lower concentration of selections, or because there will usually be a wider distribution of results among 350 stocks than 100?

Equally, might other strategies in the No-Thought portfolio be blunted by their size?

To try and answer this, I will track the top 10 stocks in each sub-strategy from this quarter, to see if this helps improve performance. My unfounded hunch is that it might, albeit at the possible price of greater volatility.


Thoughts on the no-thought

To my mind, here are a few other issues with the No-Thought portfolio.

One is that a third of its picks – the negative momentum and high beta selections – require short-selling. This is fine as a theoretical exercise and can even help to smooth periods of falling markets, as proved the case in the first quarter of 2020, when shorting negative momentum and high beta stocks capped the portfolio’s three-month loss to 5.5 per cent. But in practice it comes with added borrowing costs and all sorts of risks for a portfolio looking to build long-term wealth.

Neither am I wholly convinced by the balance of strategies, even though they have combined relatively well over the past year. While buying into positive momentum has been a smart long-term strategy, both shorting volatility and buying bargain stocks have led to occasional busts over the past decade that can be hard to come back from.

Another problem is a conflict between two of the smaller screens. Eagle-eyed readers will note that several stocks in the ‘long’ strategies also appear as ‘shorts’ – a theme which is most apparent across the negative momentum and value screens.

On one level, this shouldn’t be a great surprise. Companies whose share prices have been battered will sometimes have high trailing dividend yields, as is the case with Ukraine-based iron ore pellet producer Ferrexpo (FXPO). Similarly, stocks may be highly volatile stocks because they outperform an index, as is the case with transport operator and takeover target FirstGroup (FGP).

But it does point to some redundancy in the portfolio and shows how a single-factor approach to screening can lack nuance.

The fourth and most glaring issue, however, is the fact that the portfolio has historically tracked a simple share price return, rather than a total return that factors in re-invested dividends. There is some logic to this. In practice, the value of dividend compounding is best appreciated over a year, rather than quarterly data, and will depend on the when a payment is made and re-invested.

But for a screen focused on UK equities, the omission of dividends feels like a big oversight. It is, for example, a prime reason why investors often gravitate to two of the screen’s strategies – high-yielding stocks and the largest companies – as well as its benchmark, the FTSE 350. And while it’s tempting to assume dividends are partly cancelled out by dealing costs (which, as noted, are also excluded from our results), I think it makes more sense to include them.

For this reason, I have broken out the most recent ‘simple’ and ‘total’ returns in the table below and will track both in the coming quarters. As is clear from the past quarter’s results, the difference can be significant.

I also need to explain one other feature of my approach to the No-Thought portfolio, which may be the product of over-thinking on my part.

This is the question of how to calculate long-term returns from a portfolio split across six different strategies. In essence, it comes down to whether to equally re-weight each stock across 120 positions every time the portfolio is refreshed – thereby rebalancing the portfolio into six equally-weighted themes every three months – or running each theme on its own.

 MomentumNeg momentum (short)ValueHigh beta (short)Low riskMega capsNo-Thought rebalance*No-Thought runFTSE 350
Jun-22 (simple)-13.219.7-14.720.4-8.2-5.5-0.3-0.3-6.0
Jun-22 (total)-12.719.9-11.819.4-7.3-
Source: Investors' Chronicle, Thomson Datastream. *Whole portfolio equally re-balanced each quarter.

For the long-term data in the table and the line chart below, I have included both ‘rebalance’ and ‘run’ portfolios, based on the aggregated data from each quarter and screen. As you can see, returns from the rebalance method are markedly better.


Regardless of relative performance, I think there are more reasons to stick with the latter approach. For one, it is more consistent with the portfolio’s methodology and spirit, as weighting each strategy on its long-running returns would require lots of unnecessary calculations. Re-balancing the portfolio every quarter also allows more direct comparisons between years and quarters.

Readers can find a full list of this quarter's selections below. We'll revisit the performance in three months' time.

Q3 2022 No-Thought selections

1) Momentum2) Negative Momentum (short)3) Value4) High-beta (short)5) Low risk6) Mega Cap
Indivior (INDV)ASOS (ASC)Ferrexpo (FXPO)Harbour Energy (HBR)Fresnillo (FRES)AstraZeneca (AZN)
Airtel Africa (AAF)Aston Martin Lagonda (AML)Dunelm (DNLM)Micro Focus (MCRO)BH Macro (BHMG)Shell (SHEL)
Telecom Plus (TEP)Ferrexpo (FXPO)Synthomer (SYNT)Tullow Oil (TLW)Indivior (INDV)HSBC (HSBA)
Meggitt (MGGT)Carnival (CCL)Persimmon (PSN)Carnival (CCL)Renewables Infrastructure (TRIG)Unilever (ULVR)
BAE Systems (BA)Wizz Air (WIZZ)Admiral (ADM)easyJet (EZJ)Plus500 (PLUS)GSK (GSK)
FirstGroup (FGP)Ocado (OCDO)Rio Tinto (RIO)Vistry (VTY)Assura (AGR)Diageo (DGE)
Centrica (CNA)TUI AG (TUI)Jupiter Fund Management (JUP)Int. Consolidated Airlines (IAG)Pets At Home (PETS)British American Tobacco (BATS)
Investec (INVP)Chrysalis Investments (CHRY)Diversified Energy (DEC)TUI AG (TUI)Primary Health Properties (PHP)BP (BP)
Mediclinic (MDC)IntegraFin (IHP)PageGroup (PAGE)IWG (IWG)BBGI Global Infrastructure (BBGI)Rio Tinto (RIO)
Energean (ENOG)888 (888)Hays (HAS)Elementis (ELM)Diversified Energy (DEC)Glencore (GLEN)
Drax (DRX)Synthomer (SYNT)M&G (MNG)ASOS (ASC)Hikma Pharmaceuticals (HIK)Reckitt Benckiser (RKT)
Vivo Energy (VVO)Molten Ventures (GROW)Antofagasta (ANTO)Hammerson (HMSO)Telecom Plus (TEP)RELX (REL)
Ultra Electronics (ULE)Royal Mail (RMG)Abrdn (ABDN)John Wood (WG)Reckitt Benckiser (RKT)National Grid (NG)
Beazley (BEZ)Edinburgh Worldwide (EWI)CMC Markets (CMCX)FirstGroup (FGP)Pennon (PNN)Anglo American (AAL)
Capricorn Energy (CNE)Liontrust Asset Management (LIO)Direct Line Insurance (DLG)Virgin Money UK (VMUK)PZ Cussons (PZC)London Stock Exchange (LSEG)
Shell (SHEL)easyJet (EZJ)Centamin (CEY)SSP (SSPG)Personal Assets Trust (PNL)Vodafone (VOD)
Brewin Dolphin (BRW)RHI Magnesita (RHIM)TP ICAP (TCAP)Crest Nicholson (CRST)Greencoat UK Wind (UKW)Compass (CPG)
Glencore (GLEN)TI Fluid Systems (TIFS)Liontrust Asset Management (LIO)Taylor Wimpey (TW)UK Commercial Property (UKCM)Lloyds Banking (LLOY)
Man (EMG)Hargreaves Lansdown (HL)Micro Focus (MCRO)Meggitt (MGGT)Spirent Communications (SPT)Prudential (PRU)
Standard Chartered (STAN)Genus (GNS)888 (888)Frasers (FRAS)JLEN Environmental Assets (JLEN)BAE Systems (BA)