Investors instinctively know sectors such as utilities, consumer staples and healthcare are defensive and have historically provided shelter during stock market turbulence. Yet the analysis usually focuses on sector performance alone.

This article takes a different approach and seeks to identify stocks within the S&P 500 and FTSE 350 indices which have had the least number of down years over the past decade while also delivering good returns with less share price turbulence.

2022 WAS A WAKE-UP CALL

It has been a great decade for investors with the S&P 500 delivering a double-digit annualised return equivalent to almost a three-fold gain. The FTSE 350 has delivered a more modest 6.4% annualised return equivalent to just under two times the original investment.

However, there have been three years over the past decade when the major indices have stumbled with 2022 being the most damaging. The S&P lost 19% while the FTSE 350 (the FTSE 100 and FTSE 250 combined) retreated a modest 3% as the commodity heavy FTSE 100 provided a defensive cushion against rising inflation. The year was a reminder that stock markets do not always go up in a straight line.

The other two periods which saw indices stumble were 2018 and 2015 but these were relatively shallow downturns. What’s interesting to us is whether any stocks bucked the general trend.

FINDING THE STOCKS

We looked at calendar returns over the past decade for the constituent stocks of the S&P 500 and FTSE 350 (excluding investment trusts) indices.

There isn’t anything special about the 12 months defined by the calendar, but it is commonly used to measure stock returns. Using Sharepad data, stocks were ranked by the number of years they delivered a positive return.

We calculated the share price return over the  10-year period as well share price variability. A useful metric here is standard deviation. A low number is better than a high one as it shows returns are relatively smooth.

Smoother returns are not only better for investors’ mental wellbeing but also their investment returns. For example, a stock which loses 33% of its value needs to rise by 50% to get back to where it started.

Often the steady grower wins the race in the long run because its drawdowns (peak to trough percentage moves) are shallower while it matches market rallies during expansions.

As the accompanying tables show, the least volatile stocks tend to be the best performers and the most consistent.

A stock to buy

If we had to choose one stock which had the potential to continue performing consistently, it would be Games Workshop (GAW). The designer, manufacturer and distributer of fantasy miniatures has built up a dedicated and loyal fan base over many decades. Its enthusiastic army of Warhammer customers bring in new players by word of mouth and by developing online videos and content.

The business model is simple and effective. By controlling the whole value chain from manufacturing to distribution the firm can leverage its considerable intellectual property and maintain efficiency and pricing power. It only makes its own products.

High returns on capital reflect the strength of the customer proposition and Games Workshop’s leading market position. The opportunity to sell more miniatures and monetise intellectual property is significant. The tie-up with Amazon (AMZN:NASDAQ) to make a TV series and film from the Warhammer 40K universe has the potential to open up the franchise to a much wider audience.

MOST AND LEAST RELIABLE FTSE 350 NAMES

As a group the top 10 most consistent shares have given investors an average compound annual growth rate of 22% a year. This is equivalent to a seven-fold return.

In contrast, the 10 least consistent shares as a group have only given positive annual returns three times out of 10 and destroyed shareholder value by a compound annual rate of -11% a year.

The most consistent FTSE 350 stocks are trainers seller JD Sports (JD.), fund manager Liontrust Asset Management (LIO) and provider of health, safety and environmental equipment monitoring services, Halma (HLMA). All three have delivered positive share price returns in nine out of the past 10 years.

JD Sports has delivered the strongest return (37% a year geometric average), but this has come with wilder swings in the share price as seen by its volatility of 48% which is twice that of specialist distributor Diploma (DPLM).

A different way to look at consistency of returns is to compare them with volatility. Dividing return by volatility produces a risk-adjusted return which shows return per unit of risk.

Shares with a higher risk-adjusted return give investors a less bumpy ride. Promotional products company 4imprint (FOUR) comes out on top on this measure (28.9/38=0.75) with Halma a close second.

Multi-media platform company Future (FUTR) has the lowest risk-adjusted return (20.1/81=0.25) from the list. Although investors have made good returns over the decade, they were front-end loaded. Since peaking in 2021 at £38.80, the shares have since lost 60% of their value.

THE US WINNERS

Within the benchmark S&P 500 there are six shares which have an unblemished record over the last decade. Collectively the top 10 most consistent shares have delivered an annualised return of 21%, equivalent to 6.7 times original investment.

At the other end of the spectrum the least consistent have delivered a positive return less than half the time and collectively have destroyed shareholder value to the tune of 6% a year.

The best performer has been uniform rental company Cintas (CTAS:NASDAQ) which has delivered an annualised return of 27% with minimal volatility (17%) which means it has a risk-adjusted return of 1.59 (27/17).

Coming a close second is tech giant Microsoft (MSFT:NASDAQ) and diversified healthcare firm UnitedHealth (UNH:NYSE). Because the latter’s return has lower volatility (13%) it has a superior risk-adjusted return of 1.95.

Readers may wonder why electric vehicle maker Tesla (TSLA:NASDAQ) doesn’t make the list given that its shares have the best return over the last decade, giving investors a 54-fold gain or 49% a year on average.

However, the shares have lost value in two years out of 10 (losing 50% in 2022) and experienced huge volatility of 245% which means the shares have a risk-adjusted return of 0.2 (49/245). In other words, Tesla stands out as having the best return within the S&P 500 but is easily the riskiest.

Gaming chip maker Nvidia (NVDA:NASDAQ) comes a close second with the shares rising 53-fold over the last decade but with much lower volatility than Tesla (80%) to give a risk-adjusted return of 0.61 (40/80).

The appearance of healthcare companies is perhaps understandable, but the fact there are two consumer cyclical firms on the list is more surprising.

Discount retailer Dollar General (DG:NYSE) sells seasonal items and home products. This is not a glamour stock by any measure, but its consistent performance is notable. An annualised return of 19% and volatility of 15% gives it a risk-adjusted return of 1.24.

Discounted brands seller TJX Companies (TJX:NYSE) which trades as TK Maxx in the UK has delivered consistently strong returns to shareholders of 14% a year on average.

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