NAPS Australia & NZ 2023

3rd Jan '23 by Chris Batchelor

13 comments 1478 reads

Welcome to the inaugural NAPS Top Stocks Australasian edition. The No-Admin Portfolio System (NAPS) portfolio has been running in the UK for the last eight years and demonstrated market beating performance.

The entire philosophy behind Stockopedia.com is not to 'tip' stocks. We don’t tip stocks as we don't believe we need to. The history of stock market returns shows that simple rule-based stock picking models have been far more consistent and effective than human forecasts.

So don’t view the NAPS portfolio as a tip sheet. It is constructed using a simple rules based approach with only minimal discretion. It is purely for the purposes of education only and does not reflect an actual portfolio.

You could create your own portfolio using this method or a similar one, but that is entirely up to you.

NAPS is a 20 stock portfolio from the highest StockRank™ stocks, diversified across sectors, rebalanced annually. It’s a “select once, leave for a year portfolio” that requires no more than an hour to put together.

Portfolio Rules

Diversified Portfolio

To ensure a well diversified portfolio we select two stocks from each of the broad economic sectors as identified by Stockopedia. We select the two highest StockRank™ from each sector and add it to the portfolio. That’s it!

However in order to ensure that our Australasian NAPS portfolio’s diversification reflects that of the Australasian market, we have included a separate sector, Real Estate in acknowledgement of its size and contribution.

Further, given their smaller size we have only selected one stock from each of the Telecoms and Utilities sectors.

In total the portfolio has 20 stocks spread across a diverse range of economic sectors and all with high ranking StockRank™ (QVM) scores.

Note: There is one exception where CRN is included in the Energy sector, rather than the Basic Materials in which it is listed. We explain why in the company’s commentary below.

Average daily trade of $50,000

There are a number of stocks in Stockopedia that have exceptional qualities, however do not have enough liquidity for investors to easily take a position.

The lack of liquidity in their shares means spreads are huge (assuming there is enough stock available to take a position) and therefore any trading…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Jingili1979

3rd Jan '23

Hi Chris,

If you look at annual rebalancing it seems that QM90 works better from 2016, those who can tolerate volatility the pure momentum is the winner.

This leads me to think we should be able to filter for the Sharpe ratio in the Folios as possibly some negative correction instead of filtering for volatility at an individual share

Over one year the ASX300 out performed all QVM decile but not over the long run, it reinforces period of underperformance so one needs to look at the whole business cycle

jonkingston

Glad to see you covering stocks outside of the UK. Australia is filled with some great companies but is often ignored.

Chris Batchelor

Hi Jingili,
As you have observed, momentum drove the performance of the QM90 stocks over that longer period. Most of the outperformance occurred during the 2020/21 period when many small and unprofitable stocks skyrocketed, especially if they had any sort of exposure to technology. Our market has a very long tail with a large number of thinly traded stocks. That is why we introduced a minimum liquidity level into our selection criteria. The indices are also heavily weighted towards a few large stocks like BHP, whereas the QVM performance uses equal weighting so that can also create differences when comparing the two. You are right, it is important to look across the business cycle. Short term anomalies can create their own effects as we have seen with the COVID impact. Interesting thoughts about the Sharpe ratio.

4th Jan '23

Yes there are many opportunities in Australia. We plan to continue highlighting some of them.

Sagie5

Thank you.

This is interesting. Appreciate the analysis as always.

Will place a few of these businesses on my watch list. However, for now I'm not sure how this would best work for me as a short term investor.

Sagie

InvestTrader

5th Jan '23

Thanks for this contribution. I used to have a UK sub , so I would like to just mention that Ed changed the UK NAPS portfolio slightly in the last few years. I think the top QM and VM stocks for each sector were used instead of the top two stock ranks. Not advocating this, just mentioning for those interested.

Also, I have tracked an Aussie NAPS for the last 5 months or so. Given it contains quite a few smaller stocks it held up really well - slightly better than ASX200 index before dividends. Unfortunately the ASX Small Ords is not available as a benchmark in Stocko. - and I think it is minus 15 or 20%.

Elio D'Amato

Thanks for the heads up. Yes. We know Ed has tweaked the model since he launched it 8 years ago.

But like any good scientific experiment we are starting with the original basic hypothesis and we will build on it from there (if at all based on results).

You are correct in pointing out some of those illiquid positions, while they would have contributed nicely to performance, the reality is the lack of liquidity would make it difficult for even the smallest of positions to be accrued.

That is why we introduced the $50,000 average daily trade threshold. While this is still quite small, a position of even $5,000 would likely be achievable at a fair price at that liquidity point. Though it has meant that we have some large cap hitters in the list eg TLS, BSL, IPL and ANN in the list we also have some smaller entities like LYL, and SSG which creates a nice natural balance of Large and Micro caps across the portfolio.

And yes it would be good to have the XSO , (ASX/S&P Small Ords ) its on our wish list for HQ to consider. We will comment on it in different forums (including this one) . Just as we did in the past Momentum Monday article where we noted the XSO had fallen 21.2% in the 2022 Calendar Year.

Just remember though, the XSO is simply the ASX300 minus the ASX100, therefore when analysing the true performance of small caps it can fall a little short - but is good enough for most bench marking scenarios.

And just a final reminder, the Australasian NAPS list is not intended to be a fund that you run out replicate blindly. We do this exercise together solely for the purposes of education, so that we can collective learn from a shared experience (and help console each other if it ends up like another year like 2022 - which also lead to the underperformance of the UK NAPS portfolio for the first time in 8 years. Not a bad strike rate!)

7th Jan '23

Just for interest, I started the Aussie NAPS trial Port of 1st April. The XSO is down about 15%. The NAPS port is down 4%. A lot of the picks had high divs so you would be at least breakeven.

8th Jan '23

Excellent work! As an aside, people only seem to remember dividends when their price returns are negative, but if harnessed correctly, they are a great amplifier of returns.

Stu B

25th Jan '23

Thanks this is great. Really enjoy some Australian content on the fab Stocko.

J Skirrow

6th Oct '23

“In order to overcome this problem, stocks in our portfolio must meet a basic screen that they trade on average above $50,000 per day to be included“. Is it possible to screen for this from the SCREENS page? Is this functionality available ?

11th Oct '23

Hi there,
This measure is not directly available in the screener. You can screen on average volume which helps to find stocks with low liquidity.

4th Nov '23

Ok. Thanks Chris .

NAPS Australia & NZ 2023

Portfolio Rules

Diversified Portfolio

Average daily trade of $50,000

Unlock the rest of this article with a 14 day trial

About the Author

Chris Batchelor

13 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...