A surge in popularity in ‘meme stocks’ in the early part of the year has given way to renewed interest in value names across the UK’s major retail platforms in 2021.
The table below shows the most bought stocks in the first three quarters of 2021. Eight names appeared on more than one list: Rolls-Royce, International Consolidated Airlines, Lloyds Banking Group, BP, GlaxoSmithKline, Tesla, Argo Blockchain and GameStop.
Source: Hargreaves Lansdown, AJ Bell and Interactive Investor
GameStop
GameStop was a notable name on the list, having been at the centre of the Reddit-Robinhood controversy at the start of the year.
Its shares soared nearly 2,000% in January after a group of retail investors organised a ‘short squeeze’ over a Reddit forum, pledging to hang onto the stock after learning many hedge fund managers had bet heavily against it. This hit the latter group hard when they were forced to buy back GameStop shares at a much higher price than they had sold them for.
Platform Robinhood responded by restricting trading on the stock.
Laith Khalaf, analyst at AJ Bell, said that of the trends represented on the list above, the GameStop saga was “the most sensational, and likely most short-lived”, referring to it as “meme stock investing”.
While many of the early Reddit investors made strong gains from GameStop, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, warned against chasing “hot stocks”. Instead, she recommended pursuing more of a long-term approach.
“If multiple investors are going after one particular investment, then they’re probably buying it at a price higher than it's worth,” Streeter added.
GameStop’s share price is currently down just over 8% year-to-date, according to Google Finance.
Argo Blockchain
On a similar theme of ‘hype investing’, Argo Blockchain was also a popular stock.
The cryptocurrency-mining software provider has well-known clients including Bitcoin and Ethereum.
Khalaf said: “We’ve seen continued interest in Argo Blockchain as a way investors can gain access to crypto prices through their pensions and ISAs after the FCA prohibited the sale of crypto ETFs at the beginning of the year.”
It has made a total return of 260.6% year-to-date. By comparison, the FTSE 100 has only returned 13.3%.
Performance of stock vs FTSE 100 YTD
Source: FE Analytics
Tesla
One of the most well-known names on the list was Elon Musk’s electric car giant Tesla. Streeter said it was still “basking in the green spotlight” as investors and consumers continued to focus on sustainability.
The stock was one of the 2020’s major winners, rising 700%. Despite talk of a bubble, it is up 7% this year.
Streeter said the popularity of electric vehicles (EVs) has been growing, adding that rival car companies such as Volkswagen “are trying to swerve into pole position to steal Tesla’s crown, and other companies are revving up their EV line-ups”.
The underlying business looks to be in a strong position, but after it released its Q2 results, Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Our view of Tesla remains unchanged. Terrific brand, terrific products, but terrifying price.”
Rolls-Royce and International Consolidated Airlines Group SA
Rolls-Royce and International Consolidated Airlines Group appeared on all three lists, reflecting a more positive forecast for the airline industry.
Commercial international and domestic travel was essentially non-existent for large parts of 2020 because of coronavirus-related lockdowns. The lifting of those restrictions earlier this year saw a resumption of air travel, particularly long-haul flights, which both companies rely on for trade.
“The lifting of travel restrictions for double-jabbed visitors to the US provided the thrust needed to send IAG’s share price on an upwards trajectory,” Streeter said.
“Rolls-Royce also caught a ride higher, given that its core business of making and servicing engines for long-haul aircraft is based on the number of hours its engines are in the air, so the return of UK and EU travellers to transatlantic travel will be a much needed boost.”
But there is a long way to go for these stocks to reach pre-pandemic levels, she added. Both will be vulnerable if any new Covid variants cause further lockdowns.
Lloyds Banking Group
Richard Hunter, head of markets at interactive investor, said Lloyds Banking Group was “riding the wave of generally improving conditions, upping its guidance for the year with further bad loan releases boosting its numbers”.
The bank has returned 31.4% this year, well ahead of the FTSE 100.
Performance of stock vs FTSE 100 YTD
Source: FE Analytics
Banks were hit hard in 2020 when they were forced to suspend dividends. But following the release of positive trial results for several Covid-19 vaccines in November last year, value stocks have taken in a flood of money.
Hunter said that Lloyds’ outlook for the UK economy remained conservative, pointing out a spike in unemployment is likely as many government-support schemes come to an end.
BP
BP was another value name that proved popular this year.
The company is one of the main dividend payers in the UK and has traditionally been a firm favourite among income investors. Last year, however, it was forced to halve its dividend payout, the first cut for more than a decade.
BP faced headwinds aside from the pandemic in 2020, including a crash in the oil price and the rise of sustainable investing, with many funds in this area refusing to hold fossil fuel stocks.
However, the company said it wanted to be part of the renewable energy transition and has outlined plans to invest more money in this area.
A hike in its dividend compared with last year, and the rotation into value, help to explain why the stock has been popular with investors in 2021.
It has returned 38.8% this year.
GlaxoSmithKline
Last up is pharmaceutical giant GlaxoSmithKline. Healthcare was thrust into the spotlight during the pandemic, even though many experts in the sector pointed out most of companies that made the coronavirus vaccines wouldn’t profit from them.
Year-to-date the company has made 9.38%.
Other popular stocks were ITM Power, easyJet, Glencore, Cineworld, Legal & General, Unilever and Vodafone.