At the start of January we published our Best Ideas for 2018 – 16 stock picks that we believe have great prospects in the current year, 2 of which being carry-overs from 2017. This is an exercise that many of our competitors do each year, along with many financial columnists and investment magazines and platforms – so why, you ask, should anyone look at the N+1 Singer choices in particular?
Strong track record
The first answer is an enviably strong track record. We have been publishing a yearly “Best Ideas” piece in January since 2012 and our picks have outperformed the wider market as a portfolio in 5 out of the last 6 years – 4 of those years by double digit percentages. Even in the year our Best Ideas lagged the wider market (2016), they still went up in aggregate in absolute terms (as they have in each of the last 6 years). Last year our 14 top picks in aggregate outperformed the FTSE All Share by 9% on a total return basis. On a reinvestment basis, the cumulative total return of our portfolio to December 2017 would be 300% which is getting on for twice the total return of the FTSE All Share over the same time period (163%). To some extent our success may reflect our sector focus as a house on “growthier” areas like Technology, Life Sciences & Media (our two biggest risers in recent years being IQE and Oxford Metrics), but we have not always benefited from this factor as we have inevitably picked underperformers in these areas too! Furthermore we have by no means done badly in less obviously growth sectors – significant outperformance has come in recent years from picks like JD Sports Fashion, Trifast, Grainger, Scapa, Safestyle UK, WYG and last year Cineworld kicked in with a double digit beat of the wider market in H1 before we proactively retired it as a pick.
The second answer is the detailed top down and bottom up commentary which accompanies our two page inserts on each individual stock pick. Here we explain all the macro and micro themes which inform our stock picks and we believe many clients find this commentary particularly useful – not least because if they have an aversion to a particular stock we pick (or already own it) they may still agree with the drivers behind the choice and come up with an alternative. A good example here would be our clearly articulated overweight of the Industrials last year where our H2 pick of Renold failed to deliver for company specific reasons, even as the wider sector continued to outperform very nicely. In addition to an 11 page discourse on these micro and macro themes, we also include a section giving a quant overlay which generate further investment angles – N+1 Singer being one of the few brokers with a dedicated quant service in the mid and small cap that can offer this overlay.
So what are our key themes for 2018?
The global backdrop remains one of synchronised growth (UK the laggard) and now with the start of synchronised tightening, albeit we do not view the tightening with concern at this stage. So yes, we continue to play ongoing secular growth in Tech, Life Sciences, Healthcare and Financials. In addition we tap into domestic areas of cyclical strength such as regional construction and house building, plus self help initiatives and potential market share gains. We maintain a favourable view of Industrials given the global economic backdrop, but think this could moderate during the year and note FX becoming a headwind and the PMIs potentially peaking. Other changes of nuance include the potential for a better H2 in the Consumer sectors, which remain under pressure for now, and a better outlook in Media from a mini-quadrennial year in 2018. Finally our Quant overlay techniques suggest that Growth and Quality are likely to remain strong styles at least in the early part of the year. In terms of the individual stock picks, why not call your Sales or Analyst contact for a punchy exposition on 16 juicy calls for 2018!