Compound Income Portfolios update.

The Compound Income Scores portfolio had a poor month in March as it took a few big hits on some stocks with the gainers being insufficient to offset this. As a result the portfolio finished the month down by 0.76% which compared to the FTSE All Share which was up by 1.94%, both in total return terms. The other factor in this was the sharp recovery in the more commodity related sectors during March where the portfolio still has no exposure having previously benefited from this positioning.

This is reflected in the roughly twelve month returns (3/04/15 - 31/03/16) since inception, with the portfolio producing a total return of 10.5% which compares with -4.8% from the FTSE All Share on the same basis for an outperformance of 15.3% since inception. Those of you with good memories may recall that I also did an annually re-balanced version of the original portfolio in addition to the quarterly re-balanced version discussed above. This had lagged the quarterly version during the year but made this up in the last quarter to end with a very slightly higher return of around 10.7%. I guess this may not be that surprising as they shared quite a few stock positions and I only changed about a third of the holdings along the way in the quarterly version. It does however make me wonder though if all the bother of re-screening quarterly was actually worth it?

Having said that I also feel that perhaps the quarterly screening was missing some alpha signals from the scores along the way and perhaps these could be better captured with a monthly re-balancing schedule, although this may well incur extra costs which could offset some or all of the benefit. So for this year I'm going to try monthly screening and allow changes where news flow dictates and compare it again with a re-balanced selection which is left unchanged with a year of masterly inactivity. To help on the cost front I've assumed another years contributions so as to reduce the impact of commissions to 0.2% on the increased unit size, although the cost of smaller top ups to most of the other existing holdings will cost more like 0.5%. Originally the Scores portfolio was designed to compare how it performed against my own selections in my Man versus Machine post and to provide a portfolio for the site. By way of summary this was to test the theory that computer models or algorithms can be more effective in selecting stocks as they are not subject to human biases and will tend to buy unpalatable stocks which then go onto perform.

So it is now that time of year when I update the performance of my main portfolio on the site too, so how did I do against the machine and the Scores portfolio? My portfolio had a strong calender year performance of around +15% total return, but it did underperform the CIS portfolio in the 9 months to the end of 2015. I also had a poor first quarter and dropped of a strong Q1 from 2015 so my portfolio continued to trail the CIS and was actually down by 2.5% for the year although this was still slightly ahead of the -3.9% produced by the FTSE All Share Index for another year of outperformance of 1.4% this year. That makes it seven years of outperformance in a row now, but as this is the first year I have lost money in absolute terms I guess it could be a portend of things to come as no process can outperform every year and perhaps my type of income growth stocks have been bid up to such an extent that they may underperform more generally from here if they get de-rated. As ever I guess time will tell but given the tricky and volatile market it would not surprise me if I do underperform as some point and it still feels like returns will be hard to come by this year.

To try and counter that going forward I will be trying to follow and investigate the more unpalatable stocks coming out of the Scores more fully and try to implement my own portfolio more effectively this year. Please note however, that I will only be providing updates on the Compound Income Scores portfolio to subscribers, so this will be my final update on this here, although I might see if I can put a performance table up on the site in due course for the record. So if you are interested in following it yourself and gaining access to the Compound Income Scores and the attractive income stock ideas they can provide, then please get in touch via the contact page for details of how you can subscribe.

Right that's it for now as I going to finish my Easter break with a long weekend in Paris, back next week - au revoir.