logo-loader

"Footsie Flops" live down to their name

Our tweaked UK take on the famous "Dogs of the Dow" strategy performed very well in its first year (to end January 2018) but pooped on the pavement in the second year

Toy teeth eating into five pound notes
The virtual portfolio lost money in 2018

2018 was not a good year for the “Footsie Flops”, our UK interpretation of the celebrated “Dogs of the Dow” investment strategy.

The mechanical investment strategy was championed by Michael O’Higgins, the celebrated investment guru and author of the book, “Beating the Dow”.

We’ve tweaked O’Higgins’s system, which was based on the Dow Jones and simply harvested, once a year, the 10 highest yielding stocks from the Dow.

Our “Footsie Flops” version – so called because it tends to identify unloved blue-chip stocks – was based on the FTSE 100, and used the projected yield (based on broker forecasts) rather than the historical yield (based on what the company paid out in dividends over the last 12 months).

As an extra fail-safe, we limited our universe to those FTSE 100 stocks where the dividend cover – earnings per share dividend by dividend per share – was at least 1.5.

A full explanation of the system can be found in the link below.

READ Selectively breeding the Dogs of the Footsie

The first year we ran the stock filter (from end-January to end-January for reasons too dull to mention), the portfolio did very well, turning a virtual £10,000 investment into £11,684, including £629 of dividends.

A return of £629 on £10,000, by the way, is a very handy yield of 6.29%.

It would have been better to have let sleeping dogs lie

A refresh of the portfolio for year two meant six stocks exited and six stocks took their place. Assumed dealing costs of £15 per trade meant that those 12 transactions wiped out £180 of the profits but such is life.

More worryingly, since we refreshed the portfolio on 30 January 2018, the portfolio has lost around £1,300 (2.4%) in value over a period in which the Footsie fell 5.8%. It is worth bearing in mind that the performance of the Footsie Flops has been flattered by the inclusion of around £800 in dividends.

Company

No. of shares

Total cost

Average price paid

Current bid price

Current value

Profit/ loss £

Profit/ loss %

Aviva

231

£1,217

526.89p

421.8p

£974

-£243

-20%

Berkeley Group

29

£1,193

4,114.72p

3,805p

£1,103

-£90

-8%

BT Group

323

£1,002

310.15p

233.15p

£753

-£249

0%

Evraz

316

£1,216

384.75p

384.75p

£1,624

£408

34%

ITV

708

£1,215

171.57p

132.85p

£941

-£274

-23%

Legal & General

419

£1,000

238.78p

263.9p

£1,106

£105

11%

Lloyds Banking

1,701

£1,215

71.44p

57.78p

£983

-£232

-19%

Marks & Spencer

293

£999

341.02p

295.4p

£866

-£134

-13%

Persimmon

51

£1,000

1,960.41p

2,421p

£1,235

£235

23%

WPP

94

£1,227

1,304.96p

879.2p

£826

-£400

-33%

 

  • Cash: £819
  • Value of portfolio (including cash): £11,229

After such a miserable performance, one might wonder at the wisdom of repeating the experiment in 2019 but O'Higgins made no promises that his system would make money each year but he did suggest that over the long term it would outperform the market.

So, sticking our fingers in our ears, closing our eyes and babbling “la-la-la, can't hear you” as people politely mention the dangers posed to the stock market by a “no deal” Brexit, we have refreshed the list.

If at first you don't succeed ...

As a result of the performances of most of the “Footsie Flops” living up to their names, seven of last year's 10 return to give it another go; housebuilders Berkeley Group and Persimmon exit the virtual portfolio – the former because its forecast yield has slipped to a still enticing 4.6% and the latter because its projected earnings are less than 1.5 times the projected dividend – while Marks & Sparks also heads for the exit, also because its dividend cover is not up to snuff.

Taking into account assumed dealing costs of £15 per sale, and adding on the cash in hand (mostly from dividends), gave us £3,982 to spend on the three replacement stocks, which are housebuilder Barratt Developments PLC (LON:BDEV), oil & gas giant Royal Dutch Shell (LON:RDSB) and package tour operator TUI AG (LON:TUI).

The projected yield of Barratt is 8.2 (forecast dividend cover is 1.6); for Shell, the forecast yield is 6.1% (cover: 1.5) and for TUI the looked for yield is 5.9% on cover of 1.7.

Here's the new look portfolio, looking much like the old look portfolio.

Company

No. of shares

Total cost

Average price paid

Current bid price

Current value

Profit/ loss £

Profit/ loss %

Aviva

231

£1,217

526.89p

421.8p

£974

-£243

-20%

Barratt Developments

239

£1,328

555.68p

548.4p

£1,310

-£17

-1%

BT Group

323

£1,002

310.15p

233.15p

£753

-£249

0%

Evraz

316

£1,216

384.75p

384.75p

£1,624

£408

34%

ITV

708

£1,215

171.57p

132.85p

£941

-£274

-23%

Legal & General

419

£1,000

238.78p

263.9p

£1,106

£105

11%

Lloyds Banking

1,701

£1,215

71.44p

57.78p

£983

-£232

-19%

Royal Dutch Shell

53

£1,333

2,515.81p

2,483.5p

£1,316

-£17

-1%

TUI

108

£1,320

1,221.89p

120.65p

£1,303

-£16

-1%

WPP

94

£1,227

1,304.96p

879.2p

£826

-£400

-33%

 

  • Cash: £1
  • Value of portfolio (including cash): £11,158

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

NQ Minerals' David Lenigas focused on restructuring debt and upping profits...

NQ Minerals PLC's (LON:NQMI) David Lenigas speaks to Proactive London's Andrew Scott soon after taking over as chairman at the Australia-focused mining group. Production and exploration plans aside, Lenigas also says they're in advanced talks to replace on more favourable terms all the debt...

15 hours, 18 minutes ago

RNS

Transaction in Own Shares

13 hours, 53 minutes ago

Transaction in Own Shares

3 days, 13 hours ago

Transaction in Own Shares

4 days, 14 hours ago

Transaction in Own Shares

5 days, 14 hours ago

Transaction in Own Shares

6 days, 13 hours ago

Transaction in Own Shares

1 week, 1 day ago

Transaction in Own Shares

1 week, 4 days ago

Publication of Final Terms

1 week, 4 days ago

5 min read