Investing in UK shares over the long term can be highly lucrative for individuals capable of differentiating between solid and weak businesses. That’s obviously easier said than done. But had an investor succeeded in this task over the last five years, their portfolio would be up around 634%!
Achieving an average annual return of 44.6% is a pretty impressive accomplishment. And it’s one that even legendary investor Warren Buffett hasn’t pulled off.
So which were these explosive stocks? And what enabled them to deliver such impressive performance? Let’s explore.
The best UK shares 2017-2022
Looking at the FTSE All-Share index, the best stocks to buy in 2017 were:
- Future (+1,317%)
- Games Workshop Group (+659%)
- Kainos Group (+512%)
- Ocado Group (+350%)
- Softcat (+330%)
Needless to say, those are some pretty substantial returns. And they’re coming from UK shares in vastly different industries — from media and robotics to technology and tabletop figurines. But despite the vast differences between these businesses, there are also several similarities.
Each firm has a fairly wide economic moat built out of competitive advantages. Starting with Future, the group is a modern-day digital media conglomerate with a massive portfolio of brands, including Techradar, Country Life, and MoneyWeek, just to name a few. There are countless media companies out there, yet what made Future so successful is the power of its branding and the loyal readers that come with it.
Games Workshop has also leveraged the branding power of its intellectual properties, especially Warhammer. With a loyal following of the tabletop miniature experience, along with the video game tie-ins, management has consistently been able to bolster its revenue stream.
Kainos and Softcat are lesser-known firms in the consumer world since both are business-facing. The former is a specialist in digitalising client operations to improve efficiency. And the latter is an IT infrastructure group that helps businesses find the right tools and solutions for specific problems.
Yet the success of these UK shares derives from a similar strategy. Both companies retained and expanded an impressive customer base by simply finding ways to cut costs and accelerate processes for their respective clients.
Lastly, Ocado has been investing heavily in robotics. This technological edge over other online supermarkets enabled the group to fulfil customer orders significantly faster and lower labour costs. Its warehouse automation technology is so good that other supermarket retailers like Morrisons are now paying Ocado to provide this solution as a service.
The power of competitive advantages
By having the edge over competitors, companies and their stocks can deliver impressive returns. After all, growing revenue and profits isn’t too difficult if a firm is in a largely uncontested position.
There are, of course, other factors at play that can render these advantages obsolete. The pandemic made that pretty clear when plenty of industry leaders were brought to their knees. But while having a wide moat doesn’t guarantee triple-digit returns, it does improve the odds. That’s why it’s one of the first things on my checklist when analysing UK shares.