Technical Analysis | The SNAPS Portfolio 2023 - On The Behaviour Of Stock Markets

3rd Jul '23 by Edward Croft

18 comments 6416 reads

It’s been a tough first half of the year for most investors in UK stocks. For all the talk on podcasts about how the UK stock market has been among the best performing in the world in the last 18 months, the group outperforming has been the large cap value stocks. In reality, all UK indices are down since the start of the year, with the more speculative, AIM-listed small caps feeling the most pain 9.4% down.

The NAPS Portfolio - the systematic, 20-stock model portfolio based on the StockRanks, now in its 9th year - is down 4.0% year to date on a price only only basis. Given the portfolio has a skew away from large caps, this is somewhat to be expected in a falling market. The performance is a fraction below the overall 90+ StockRank cohort upon which the selections are mostly based (-3.3%), but below the FTSE All Share which I have long used as a benchmark (+0.5%).

Returns since inception are 166% over 8.5 years, at more than 12% annualised, though the last 2 years have been lean, with an almost 20% decline endured since the summer of 2021.

Performance year to date

As you might expect, there haven’t been too many winners since the New Year.Warpaint London (LON:W7L) and Mears (LON:MER) have been the standout performers up 52% and 40% respectively.

But weakness in names like Keywords Studios (LON:KWS) (-34%) as well as in the Energy and Mining sectors have dragged the performance down. There are only 7 winners in the portfolio year to date, with 13 losers. In this market, even some more resilient stalwarts like Imperial Brands (LON:IMB) have been punished -16%.

Is this underperformance unusual for the NAPS? No. Since inception the NAPS has underperformed the FTSE All Share half the time. In the eight completed years, it has underperformed 4 times and outperformed 4 times. This is the second time it’s seen a consecutive year of underperformance. It’s the level of outperformance that’s been achieved in the strong years that has driven the long term returns. The three best outperforming years, 2015, 2017 and 2020 saw an average 40% outperformance versus the FTSE All Share benchmark.

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pjegeorge

3rd Jul '23

Thanks for the update, as it gives encouragement when the market is falling, if that is required.

Bluesky Ventura

I do love the NAPS and have tried to incorporate many of the methods into my own investment process. Over time I continue to believe this will continue to outperform the market. It is important to stick with the process even though it is inevitable, there will be times the performance will be worst than the market.

BSV

KevinS1

Thanks Ed. Really useful.

I created a NAPS last week and clearly I must have read your instructions correctly as last weeks selection is almost in line with what you have created today.

I am debating about creating small pots of my PF to follow a NAPS strategy in one pot, a SIF strategy in another and then my own selection of Co's and IT's for the remainder. However, part of me is saying you are only doing this out of frustration as to what is currently happening in the market............and just give it time and things will recover.

An interesting dilemma.

SouthernHighlander

4th Jul '23

I set up a NAPS at the beginning of December, with the intention of trimming any stocks where the ranking slips below a certain point. However for various reasons I left them all alone, and have been interested to see positive returns on the portfolio since then. Not sure why that is given Ed's results, but I have a +7.5% return, though I suspect it might just be due to the time period that I am measuring it.

A couple of interesting things to note. As a relative novice, I nearly didn't pick Yu (LON:YU.) as the ticker didn't look right to me. Glad I did as it has been my best performing stock. Also, I was on the verge of cutting Indivior (LON:INDV) as it had dropped significantly, as had it's ranking. However I left it as it was showing some gains, and it has now recovered all of the loss. Shows the potential value of leaving the portfolio alone and rebalancing once a year.

Rusty2

I set up a NAPS beginning of every month over the last 18 months, the only one that has beaten the FTSE AllShare index is last October, even that has fallen back considerably recently, it did pick up Yu (LON:YU.) and Kitwave (LON:KITW), Yu (LON:YU.) is up 200%, but it did have one total loss, iEnergizer (LON:IBPO^E23) .

Problem is you can only have 10 folios on Stockopedia, I wish that was increased.

1MCF

Ed, do you think the performance can be improved by excluding lower F and Z score companies from the initial pool, or does the high ranking trump such concerns?

Storminormski

Hi Ed, I've used the NAP's for a few years and yes the last 12 months have been the first time it's let me down. Reading your article you suggest waiting until there's a breakout of the indices above their 120 MA. Can the platform incorporate a chart which shows this or do we have to access it on another site eg: Marketwatch ?

Edward Croft

I haven't tested this, but I would imagine it's marginal at best. The F and Z scores are factored into the Quality Rank - the F-Score is a pretty heavy weight there. I have often found that weak Z Score stocks can become recovery plays, and/or that the Z Score isn't very predictive on its own.

Well - trend following does always lag the bottom in the market, but it greatly reduces the entry point risk. I've been lucky in the portfolio I mention in that it picked up Yu (LON:YU.) and Kitwave (LON:KITW) amongst others at the start of the year following a strict VM process, with entry only when AIM marked a "buy" signal. That buy signal (AIM above the 120d MA) didn't last very long, so the rest of the portfolio (2/3rds) remains uninvested - and will be invested when the next signal triggers. Hopefully won't be too long, but you never know.

I use the Charts here - if you search for FTSE AIM All Share Index (FTSE:AXX) and then click "Chart" you can add a Moving Average (click Overlays > Moving Average), then set it to the 120d MA. The 200d MA works v. well too, really there's no magic in the choice - it really comes down to how quickly you want the signal to be triggered when the index trend turns.

I did a study earlier in the year on the trend following returns to a timing model on AIM, going long when the index was above MAs of different levels, and staying "in cash" when it moved below. The blue line shows a sustained 'hump' at about the 120 day level - which is why I've selected the 120d MA as my signal of choice. Of course, the 200d MA has less signals per year (5 versus 7.5).

akka

7th Jul '23

Seguo la strategia dei Naps UK di Ed da 6/7 anni e ho sempre avuto ottime performance

FREng

11th Jul '23

Ed, if there a way to set an alert for FTSE AIM All Share Index (FTSE:AXX) crossing a moving average?

doctor dave

…..and on Freng’s topic, once I have saved the 120 day moving average of the FTSE AIM All Share Index (FTSE:AXX) as a Template, er, how do I access it again???

Dodge50

17th Jul '23

Hi Ed, I decided to use the NAPS for the first time this year, and wonder if you could let me have your comments on the issue of the losing stocks.

There are some 5 stocks that have fallen 20% or more in the half year and are weighing on the performance.

I appreciate that the intention is not to rebalance the portfolio other than annually, but this level of drawdown has had a hit on the performance which perhaps could be avoided, and clearly I don't need to tell you that a drop of this magnitude on a stock requires an even larger % increase to get back to where you started. I am mindful of Robbie Burns's axionm of cutting loosers when they get into the late teens.

Have you any views on this (particularly from past history) and if you were to implement some form of stop loss (automatic or otherwise), what would you do with the proceeds, roll in to current winner(s)?

Thanks David

Sean Reilly

21st Jul '23

Hi Ed. I have been considering adding US stocks data to my sub with the view to combine this with UK and having a combined NAPS. It would be great if you have the time to publish some back tested data of a combined US and UK Naps. Cheers

23rd Jul '23

I did a US Naps back in January, it performed very poorly, down 14% over 5 months, the S&P500 was up 4%. 15/20 were losers, Winners 2 were under 1%, 1 under 5%. Losers were all over 5%.
Deleted it as not enough folios on here.

The S&P has shot up in the last 6 weeks. Not convinced Stockopedia works for the US markets, I may cancel my US subscription soon.

Martin Jubb

13th Sep '23

Hi Ed.

I'm new to Stockopedia and investing and from what I've read it seems risk management is key. Can you let me know why you don't set any stop losses on anything in the NAPS portfolio?

Thanks

Jim Steel

17th Dec '23

In March 2023 I started out with new strategy and invested with a NAPS approach, strictly limiting my selling and buying. I have had quite a few shares involved in take-overs since then - 3 or 4 I think, and including Dividends which are by far the best return, I'm doing well with my 25 shares, at 7% return before tax (as not all my money is in an ISA, sadly).

Would the wise people here have any thoughts about what to do if it is possible for me to sell, before the end of the year, loss making shares in my NAPS in order to minimise tax on my gains? I think there is nothing I can do about dividends in the Trading account, but I assume I could minimise the other taxation.

I think this long hold NAPS strategy with minimum intervention is great, but then I would since I'm now winning. I understand the value of discipline and not following stories, and so I have rules. Should I add one to minimise tax, or should I simply cough up to the tax man (since profits from take-overs are not something I can avoid, and represent Capital Gains in the year that I cannot otherwise off-set)?

18th Dec '23

Yes, you can sell loss making shares, to reduce your capital gains tax. NAPs shares are sold at end of year and then a new NAPs is selected. There may be a few in this years will qualify for next years. Best to have within ISA or SIPP, then no need to worry about capital gains ir dividend tax.

The SNAPS Portfolio 2023 - on the behaviour of stock markets

Performance year to date

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Edward Croft

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