Our annual Bargain Shares Portfolio is based on a simple idea: to invest in companies where the true worth of the assets is not reflected in the share price, usually for a temporary reason, but where we think the market may wake up to that value in good time.
Our portfolios are based on the investment ideas of Benjamin Graham (see box ‘Rules of Engagement’) and the performance over the 19 years in which we’ve run them suggest these approaches remain as effective as ever, beating the FTSE All-Share index 15 times. During that time, they’ve generated an average return of 21 per cent in the first 12-month holding period, compared with an average increase of 4.5 per cent for the FTSE All-Share. My 2017 motley crew of bargain shares proved no exception, generating a 12-monthly total return of 30.4 per cent on an offer-to-bid basis and including dividends, massively outperforming the 10.7 per cent total return on a FTSE All-Share tracker ETF, the index against which we benchmark our annual performance.
That’s not to assume that this investment strategy is a dead cert. Investing rarely is. Take 2016’s portfolio, for example, which while returning 11 per cent that year lagged behind a FTSE All-Share tracker – the problem then was a lack of exposure to the resources sector, and the mining sector in particular, which had a storming year and buoyed the return on the index. Furthermore, the 2016 portfolio subsequently delivered hefty gains in its second year and has now produced a total return of 46 per cent, or nearly 9 percentage points more than from a FTSE All-Share tracker ETF in the two-year holding period.