The Winter Fund Portfolio review 2024

Last year I updated a piece of research titled 'The Winter Fund Portfolio 2023 – 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 absent from the Consistent Winter Fund Portfolio since 2022, despite being included in the portfolio when it was originally published back in 2019. Unfortunately the fund was closed on 8th November 2022. So for the purposes of these annual reviews I assume the Consistent Winter Fund Portfolio has been invested equally across the four remaining funds that are still in existence since 2022.

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 always 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. At that point, 2023 had been the best year yet for the Consistent Winter Fund Portfolio on a relative basis, outperforming the FTSE 250 by 10.82%. On an absolute basis, the Winter Portfolio returned a total of 8.40% for investors which was a great result in a year when the FTSE 250 fell over 2%. But how did the portfolio fare across the winter of 2023 and for the year 2023/24?

Consistent Winter Fund Portfolio 2023 to 2024

The chart below shows the performance of the Consistent Winter Fund Portfolio versus the FTSE 100, FTSE 250 and FTSE 350 over the last year.

As you can see the Consistent Winter Fund Portfolio exploded out of the blocks in November 2023 and continued to soar along with the FTSE 250 as we headed into 2024. The FTSE 350 and the FTSE 100 then played catch-up in the spring of 2024 but never fully closed the gap on the Consistent Winter Fund Portfolio (which I will refer to as the Winter Portfolio from now on). By November 2024 the Winter Portfolio remained above the FTSE 350 and FTSE 100. You can see from the chart that the line for the Winter Portfolio doesn't fully extend to November, due to the limitation of the charting software I use. It means that the calculations don't take into account the last month's worth of interest the portfolio would have earned, given that it would be invested in cash at that time. It means that the Winter Portfolio's total return will be higher in reality than quoted, at around 17.50%, but for the purposes of this analysis the difference is immaterial.

It is interesting to see how 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, and the FTSE 250 both surged higher in the second half of the year. But in August we saw the "Winter funds invested all year" portfolio slump back towards the standard Winter Portfolio. Given the fact that the FTSE 100, FTSE 250 and FTSE 350 trended sideways during the same period it suggests that the drag on performance was due to the funds within the Winter Portfolio having exposure to much smaller sized companies. The chart below shows the performance of the FTSE AIM index, which includes the smallest companies listed on the London Stock Exchange. It suggests that actively managed UK smaller companies' funds within the Winter Portfolio were hampered by their exposure to some of the smallest companies listed on the UK stock exchange. In the last few months their performance was hit by concerns over the impending Autumn Budget. Once the Budget was announced and the market gained some clarity, you can see a subsequent spike in the FTSE AIM index on the far right of the chart.

Despite the relative underperformance of the Winter Portfolio there is no doubting that its performance over the 6 months to May (up over 15%), and the full year (up over 18%), was impressive on an absolute basis. In fact, it was the best performance by the Winter Portfolio in three years. Also, while the FTSE 250 outperformed the Winter Portfolio this year, the FTSE 250 was still only trying (and failing) to play catch-up after its poor performance last year, as shown in the chart below.

For completeness, 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 during the November to April period was Fidelity UK Smaller Companies.

Fund	% performance - 1st Nov 2023 to 30th April 2024	% performance -1 year to 1st Nov 2024
BlackRock UK Smaller Companies	15.65	19.20
Fidelity UK Smaller Companies	18.51	18.80
Invesco UK Smaller Companies Equity (UK)	13.61	19.57
Liontrust Special Situations	14.47	14.92

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. But as I highlight each 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 1/11/24 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 Winter 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) outperformed the more conservative Consistent Winter Portfolio, and it managed to outperform anyone who remained invested all year, with the exception of the FTSE 250.

Funds to watch - Winter 2024

Before I reveal the funds to watch during the Winter of 2024, how did those I highlighted last year fare. If you recall, in November 2023 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 2023' perform?

The table below lists those funds (still in existence) alongside their return during the 6 month winter period starting from November 2023. Those highlighted blue outperformed their peer group average over the same time period (which was 18.37% for the UK Smaller Companies sector and 15.49% for the UK All Companies sector).

Name	Sector	ISIN	% return November 2023 to May 2024
BlackRock UK Smaller Companies	UK Smaller Companies	GB00B4LHDZ30	15.65
Fidelity UK Smaller Companies	UK Smaller Companies	GB00B7VNMB18	18.51
Invesco UK Smaller Companies Equity (UK)	UK Smaller Companies	GB00B3RSCB23	13.61
JOHCM UK Dynamic	UK All Companies	GB00B4T7HR59	16.88
Jupiter UK Smaller Companies Equity	UK Smaller Companies	GB0004911870	18.64
IFSL Evenlode Income	UK All Companies	GB00BD0B7C49	8.05
WS Gresham House UK Micro Cap	UK Smaller Companies	GB00BV9FYS80	19.17

Once again, applying the same process as last year, I've produced a shortlist of possible candidates for a '2024 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.

Summary

Such is the robustness of the original research and portfolio construction that my conclusion remains the same. 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 250 did in 2023. 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.