The likes of Direct Line, DCC and Taylor Wimpey are among the best performing stocks in the UK’s FTSE 100 main equity market this year, according to research by FE Trustnet.
The year has been a tumultuous one for UK and global stock markets and the FTSE 100’s 4.63 per cent loss belies a volatile 12 months, providing a tough time for investors with money in the UK index.
According to FE Analytics, the FTSE 100 has risen by 10 per cent from trough to peak on two occasions over the year as well as seeing a torrid 15.7 per cent plunge from April to August when Black Monday saw the most selling on one single day’s trading for several years.
Performance of index in 2015
Source: FE Analytics
However, there has been a diverse range of performances with 61 of the 99 stocks in index in positive territory in total return terms and insurer Direct Line and investment group DCC both clocking up a near 60 per cent gain this year. However, the latter only recently joined the index in its latest rebalancing.
Source: FE Analytics
It’s important to note that the above figures are the total return of the stocks, so it includes the gains made with dividends reinvested rather than just the share price alone.
Dividend pay-outs per share rose for Direct Line this year following on from several strong years with the figure more than double that of three years ago, which no doubt helped attract investors to the stock.
Hargreaves Lansdown’s Danny Cox said: “Direct Line’s performance continues to impress. The group has returned 87p, or 50 per cent, of its IPO price as dividends since listing in 2012. Further capital returns will be considered alongside the 2015 full-year results.”
Housebuilders Taylor Wimpey and Berkeley Group also make it into the top five and both have also been added to the index in past 12 months or so, the former in December 2014 and the latter in July 2015.
Chris Beauchamp, senior market analyst at IG, says rising wages, home prices and government policies such Help to Buy have been catalysts for a bull run for housebuilding stocks.
However, he says related industries are suffering: brick producers, insulation and kitchen sales are all down or seeing slower growth and he thinks current valuations for housebuilders are therefore stretched.
“The housebuilding sector is looking overvalued … and higher price-to-book values suggest the good times for the sector are over but we may see share prices rise further in 2016 although it’s a sector where stock picking is important. Premium housebuilders such as Barratt and Berkeley Group look less attractive than Taylor Wimpey and Persimmon,” he said
Of course with just one in three stocks in the index having fallen when total returns are considered but with the index down altogether, there are names where real drama has been seen.
The year has seen some very negative performances, mostly from mining groups with Glencore, BHP Billiton, Rio Tinto and Antofagasta all massively down. Glencore has been one of the most volatile members of the index.
Performance of stocks and index in 2015
Source: FE Analytics
Invesco Perpetual head of UK equities Mark Barnett says the sector has suffered in the second half of the year thanks to plummeting sentiment and increasingly destructive evidence of a slowdown in China’s economic growth causing commodity and energy prices to fall.
“As a result of these falls, the mining sector has been the worst performing sector in the UK year to date in share price terms.”
Steve Davies, manager of the Jupiter UK Growth fund, thinks things are likely to remain tough for mining companies as capex budgets will be forced to reduce further.
Beauchamp agrees, adding that he thinks miners are likely to be “stuck in a hole” for some time.
“Compared with a year ago, mining shares look much more attractive but cheap things tend to get cheaper. There is no end in sight to the commodity slump and returns on invested capital continue to fall, as capital costs rise,” he said.
“Dividends are now under threat as a result and we could see BHP Billiton and Rio Tinto cut their dividends. For BHP Billiton, the Brazil disaster could be the catalyst which makes them reassess their dividend payment. We are also likely to see selective mergers in the sector.”
Royal Dutch Shell, the seventh worst stock, has also been hit by the lower demand expected from China as well as, of course, the low and falling oil price.
A weak outlook for emerging as whole was enough to secure Aberdeen Asset Management a place in the top 10 biggest fallers as well.
Of course, little happens in complete isolation but there have also been more secular stories in the list of the worst performers.
Source: FE Analytics
Standard Chartered, Pearson and Rolls Royce have seen recent dramatic falls in their share prices with investors fretting about the risk to their futures after disappointing trading updates.
John Lambert, investment manager for global and UK equity strategies at GAM, says Pearson sold off significantly during the final quarter of 2015 unduly
“We believe there is still a strong case to be made that Pearson is a global leader in education technology, and that recent poor performance can and will be rectified,” he said.
“The role of technology in education will continue to rise, and so long as educational outcomes in many developed markets remain below expectations (notably the US), then demand for Pearson’s core offering should remain structurally intact.”
“The stock looks particularly cheap in comparison with its own history, and expectations remain very low. To contrarian value investors, the stock looks very interesting at these levels.”
For long-term backer of Rolls Royce Neil Woodford, the stock is no contrarian play but a value trap and he has exited his position after owning it for more than a decade.
“This is a very long-term business which is sensitive to assumptions around manufacturing and servicing costs and operational metrics such as the number of hours flown, reliability and operational longevity,” Woodford said.
“Our decision to sell the shares reflects a significantly increased level of uncertainty about how these metrics will play out over the next three to five years in a way which will benefit Rolls’ shareholders.”