Backtest UK and European shares

The problem

Most backtesting tools assume US shares in dollars. A UK investor pays stamp duty on UK shares, is paid dividends in pounds, may hold European shares priced in euros, and often pays a fixed fee on every deal.

Leave those out and a UK result looks better than it was. Compare it with the US market and the currency gets mixed into the answer.

Step by step

1. 1

   Name the shares

   Say HSBC or Shell and the agent reads the London listing. A European share is named by its listing, such as SAP.DE.

2. 2

   Set your account

   Choose pounds, an amount and your broker in the composer. The test then uses that broker's published charges, and whole shares if that is all the broker offers.

3. 3

   Costs are charged

   Stamp duty is deducted on purchases, never on sales: 0.5% on UK-incorporated shares (UK stamp duty reserve tax) and 1% on Irish-incorporated ones. ETFs pay none, and London lines of companies incorporated elsewhere are treated as paying none.

4. 4

   Dividends come in after tax

   Each dividend is paid in on its ex-dividend date, after the tax taken from it, and reinvested.

5. 5

   Compared with its own market

   The comparison is FTSE 100 (ISF.L, iShares Core FTSE 100) for London shares and Euro Stoxx 50 (EXW1.DE, iShares Core EURO STOXX 50) for European ones, in the same currency as the test.

A worked example from a stored test

A stored test from the truth matrix, the set of cases run against the engine on real prices to check its figures (case K06). It held 2 of 4 London shares at a time, chosen each month by their past year's return, in a £1,000 account at Hargreaves Lansdown (online share dealing), whole shares only. The words were: "Every month hold the 2 stocks with the best 12-month return among HSBA.L, BP.L, SHEL.L, AZN.L, over the last 5 years"

In a small account a fixed fee on every deal can cost more than the tax: here the dealing fees came to £271.05 and the stamp duty to £60.39. The same rule in a larger account, or with a broker that charges a percentage, pays a different share of its money in fees.

A stored test from the truth matrix, the set of cases run against the engine on real prices to check its figures (case C02). Every purchase, sale and dividend converted between euros and pounds at that day's rate. The currency fee came to £11.08 and the tax taken from dividends to £15.87. It ended at £2,232 against £1,821 for simply holding the Euro Stoxx 50 fund in pounds, from £1,000, 1 Oct 2021 to 1 Oct 2026.

A fund pays no stamp duty. The golden cross on a FTSE 100 fund ended at £1,564 against £1,764 for simply holding, from £1,000, 6 Oct 2021 to 5 Oct 2026. These three are shown because they cover pounds, stamp duty and euros, not for how they did: 2 beat their comparison and 1 did not.

What it cannot tell you

• Only shares and funds that trade today are in the data. A company that failed, was taken over or was delisted is not in it. So a test that picks from a list of shares is flattered, by an amount the test cannot measure.
• Only the London and European listings Quantis holds daily prices for can be tested. Ask for one it does not hold and the agent says so before anything runs.
• Tax rates that depend on paperwork, such as reclaiming dividend tax, are flagged on the result rather than assumed.
• Your own taxes on gains, and an ISA's or pension's rules, are not part of a test.

Try it

Each one opens the Strategy Agent with the words typed in, unsent. Set pounds and your broker in the composer before you press the button.