Last year I updated a piece of research titled 'The Winter Fund Portfolio 2022 – exploiting a seasonal trend', as I do every year. The research was inspired by a recognised phenomenon in investment markets whereby, according to the Stock Market Almanac, the 1st November marks "the start of the strong six-month period of the year for stocks". The Winter Fund Portfolio has proved to be one of the most popular research ideas on 80-20 Investor so I keep the format of the annual review the same for easy reference to previous years.
My original research piece produced two Winter fund portfolios which had successfully exploited this seasonal trend over the previous 10 years. I named these the:
- Consistent Winter Fund Portfolio
- Aggressive Winter Fund Portfolio
The methodology of how I built these portfolios can be found in the original research piece. To remind you, below are the constituent funds for each portfolio:
The Consistent Winter Fund Portfolio
- BlackRock - UK Smaller Companies
- Fidelity - UK Smaller Companies
- Invesco - UK Smaller Companies Equity (UK)
- Liontrust - Special Situations
The eagle-eyed among you will notice that BMO UK Mid-Cap has been removed from the above portfolio. Unfortunately the fund was closed on 8th November 2022. So for the purposes of this year's review, and going forwards, I'll assume the Consistent Winter Fund Portfolio is invested equally across the other four funds still in existence and listed above.
The Aggressive Winter Fund Portfolio
- Fidelity - UK Smaller Companies
- Franklin - UK Mid Cap
- MI - The MI Discretionary Unit
- Slater - Growth
- Unicorn - UK Smaller Companies
Winter Fund Portfolios during 2021 to 2022
It is worth going back and reading last year's review of the Winter Fund Portfolios to familiarise yourself with where we were this time last year, heading into the winter. After a great 2021 for the Winter Portfolios, 2022 was a poor year for the Winter Portfolios with the Consistent Winter Fund Portfolio falling 8.86%% from November 2021 to May 2022. Meanwhile the Aggressive Winter Fund Portfolio fared worse at -11.91%. Yet the Winter Portfolios' risk/return metrics still outshone their respective benchmarks. But how did they perform during 2022/2023?
Consistent Winter Fund Portfolio 2022 to 2023
The chart below shows the performance of the Consistent Winter Portfolio versus the FTSE 100, FTSE 250 and FTSE 350 over the last year.
Going into the spring of 2023 the Consistent Winter Fund Portfolio performed very strongly, at one point it was up over 12% from the level it was at on 1st November 2022. Of course, the mini-banking crisis during the spring of 2023 caused equity markets to slump globally during March before they rallied again in May. The portfolio's performance often closely tracks that of the FTSE 250, as can be seen by comparing the performance of the FTSE 250 in the chart above to that of the "Winter funds invested all year" portfolio, which has the same fund mix as the Consistent Winter Fund Portfolio but doesn't revert to cash over the summer months.
However, over the course of the year the Consistent Winter Portfolio, outperformed all the other indices due to the portfolio reverting to cash over the summer months. During a year where the return on cash was attractive this boosted the performance of the Consistent Winter Fund Portfolio further. Over the last year the Consistent Winter Portfolio outperformed the FTSE 250 by almost 11%
2023 was the best year yet for the Consistent Winter Fund Portfolio on a relative basis, outperforming the FTSE 250 by 10.82%
The performance of the Consistent Winter Fund Portfolio was so strong that it also outperformed the majority of global stock market indices over the last year, including the S&P 500 and the MSCI All Country World Index in sterling terms.
| Name | % return 1st Nov 2022 to 1st Nov 2023 |
| Nasdaq 100 | 23.88 |
| Deutsche Borse DAX 30 Performance | 13.61 |
| FTSE Eurofirst 300 | 10.07 |
| Winter Portfolio | 8.4 |
| FTSE 100 | 6.15 |
| Nikkei 225 | 5.88 |
| MSCI ACWI | 5.25 |
| S&P 500 | 5.12 |
| MSCI AC Asia ex Japan | 4.24 |
| MSCI Emerging Markets | 2.48 |
| Dow Jones Composite Average | -3.22 |
The table below shows the individual performance of each of the funds in the Consistent Winter Portfolio up to the end of April (when the portfolio switched to cash) as well as the performance over the last year. Once again, the stand-out performer was Fidelity UK Smaller Companies.
| Fund | % performance - 1st Nov 2022 to 30th April 2023 | % performance -1 year to 1st Nov 2023 |
| BlackRock UK Smaller Companies | 1.92 | -6.93 |
| Fidelity UK Smaller Companies | 13.37 | 3.6 |
| Invesco UK Smaller Companies Equity (UK) | 4.13 | -9.46 |
| Liontrust Special Situations | 7.04 | -2.68 |
Now let's look at the performance of the Consistent Winter Portfolio, FTSE 100, FTSE 250 and FTSE 350 since November 2009, which was the starting point of the original piece of research. The first chart shows the position this time last year...
Fast-forward to this year and the picture is even more impressive.
The Consistent Winter Fund Portfolio's long term performance now significantly outstrips any of the other benchmarks. In fact, the long term outperformance of the strategy is at its widest since inception. But as I highlighted last year, it's not just the absolute return number that you should focus on. If we look at the key risk/reward statistics (see table below) versus the FTSE 250 benchmark (which is the leading alternative), the FTSE 350 and the FTSE 100, the alpha generated by the Consistent Winter Fund Portfolio from 1/11/09 to 1/11/23 is still far in excess of the other indices while the beta (how much a portfolio's movements simply reflect the wider market) is much lower. The volatility of the Consistent Winter Portfolio also remains much lower while the Sharpe Ratio (the extra return the portfolio gets for each unit of risk it takes) is far higher.
From a risk/return perspective, the Consistent Winter Fund Portfolio still beats the FTSE 250 (and the other benchmarks) because it is invested in cash half of the time yet still produces strong returns. In the table below each key statistical measure is coloured coded by row, with blue being the best and red the worst for each statistical measure. Bear in mind that when calculating the alpha and beta measures for each portfolio that the FTSE 250 is used as a benchmark, so the scores for those statistics are relative to the FTSE 250. Hence why the FTSE 250 alpha is 0 and beta is 1.
As a reminder, here is what each statistical measure means...
Alpha
Alpha is a figure which measures a manager’s apparent skill at picking winning investments versus their benchmark. Alpha is the excess return versus the return of a portfolio's benchmark (i.e the market). So a portfolio with a positive alpha indicates that the manager has outperformed through skill. While a negative alpha figure would indicate underperformance. The higher the alpha figure the better
Beta
Beta measures a portfolio's sensitivity to the general market in which it operates. The market always has a beta of 1 by definition. So if a portfolio also has a beta of 1 that would mean that if the market rose by 5% then so should the portfolio. If the portfolio has a beta of -1 then as the market rises so the portfolio falls. A well-managed index fund will have a beta of exactly 1. Portfolios that outperform the market when it does well but do even worse when the market is going down will have a beta above 1.
Maximum Drawdown
This is the biggest fall experienced in a given week.
Sharpe Ratio
The Sharpe Ratio is a measure of the excess return a manager is achieving for the risk they are taking. The higher the Sharpe Ratio the better.
Sortino Ratio
This is very similar to the Sharpe Ratio but places more emphasis on the manager's ability to manage on the downside.
Volatility
This is a measure of a portfolio's dispersion of returns, or in plain English the variability in those returns. Think of it as a measure of how much a building is prone to wobble. The more prone it is (the higher the volatility) the more it will sway in an earthquake.
Aggressive Winter Fund Portfolio 2022 to 2023
But what about the Aggressive Winter Fund portfolio? The Aggressive Winter Fund Portfolio (the red line marked 'B' below) underperformed the more conservative Consistent Winter Portfolio as you'd expect, but it still managed to outperform anyone who remained invested in any of the other indices
Funds to watch - Winter 2023
Before I reveal the funds to watch during the Winter of 2023, how did those I highlighted last year fare. If you recall, in November 2022 I created a wider shortlist of funds based upon the same fund selection process for each original Winter portfolio (which is a 10-year backwards-looking process) that could be well placed to benefit from the obvious seasonal trend during the winter months. I loosened the criteria to allow for funds that had had 8 positive winters in the last 10. So how did my 'funds to watch in winter 2022' perform?
The table below lists those funds alongside their return during the 6 month winter period starting from November 2022. Those highlighted blue outperformed their peer group average over the same time period (which was 3.91% for the UK Smaller Companies sector and 10.13% for the UK All Companies sector). Again, there were some strong performances.
| Name | Sector | % return November 2022 to May 2023 |
| WS Evenlode Income | UK All Companies | 11.31 |
| Fidelity UK Smaller Companies | UK Smaller Companies | 13.37 |
| WS Gresham House UK Micro Cap | UK Smaller Companies | 10.04 |
| CT UK Smaller Cap Fund | UK Smaller Companies | 6.06 |
| Scottish Widows UK Smaller Companies | UK Smaller Companies | 4.64 |
| Invesco UK Smaller Companies Equity (UK) | UK Smaller Companies | 4.13 |
| AXA Framlington UK Smaller Companies | UK Smaller Companies | 3.45 |
| BlackRock UK Smaller Companies | UK Smaller Companies | 1.92 |
| abrdn UK Smaller Companies | UK Smaller Companies | -0.89 |
| WS Amati UK Listed Smaller Companies | UK Smaller Companies | -1.48 |
Once again, applying the same process as last year, I've produced a shortlist of possible candidates for a '2023 winter portfolio' as shown below. Interestingly all of the funds from the Consistent Winter Funds Portfolio have made it onto 2023's shortlist of funds to watch.
While we shouldn't draw any conclusions from what happens this early into "winter 2023" but the highlighted funds have certainly started well:
Summary
Once again the evidence shows that over the long term you can exploit the seasonality of stock markets, and occasionally you can profit in the short term, but it isn't a certainty that you will make a profit every winter. Also, over the long term you are better off trying to exploit this particular market anomaly via active funds within the UK smaller companies sector rather than using a passive approach (say with either a FTSE 350 or FTSE 250 index tracker). In the short term, an index tracker can of course outperform, as the FTSE 100 did in 2022. If you recall, the long term outperformance of the Winter Portfolios shouldn't be a surprise given my previous 80-20 Investor research article titled 'The sectors where active funds beat passives' which showed that active funds hugely outperformed passive strategies within the UK Smaller Companies sector.
