As 2009 petered out, the FTSE 100 finished with a mini-flourish, adding over 3% in the three days prior to the festive season, taking the index to 5372.
Despite a slight fall in January, the UK's blue-chip index had risen to 5728 by the beginning of April, going on to gain a further 100 points until eurozone debt issues surfaced, fuelling fears of a major stumbling block to economic recovery. Global financial markets went south once again, with the FTSE sliding back below 5000 by the end of May. Now, having lost almost 2% this week, the FTSE closed at 5028.15 on Tuesday 8 June.
Clearly it's been an eventful ride so far this year, but which sectors in the FTSE 350 – the FTSE 100 and FTSE 250 combined – have been performing ahead of the general trend, and which have been left lagging?
Strong performers
Three sectors have shone particularly brightly in the first six months of the year, but the clear winner among the FTSE 350 companies has been the Industrial & Engineering sector, with a gain of 19%.
The sector is represented by just eight companies – but three key factors have combined to aid its recovery from last year's annus miserabilis: opportunity, upgrades and cost-cutting.
The sector bore a heavy burden of economic worry in 2009, but a bout of prolonged selling has since given way to perceived value, a fact which has been seized upon by bargain-hunting investors. The companies also took a number of cost-cutting measures, better preparing them for the challenges of an uncertain economic climate. This course of action no doubt helped the sector’s largest company by weighting – engineering group IMI – which received a series of broker upgrades. IMI, a constituent of the FTSE 250, specialises in producing innovative engineering solutions to niche markets.
Other sectors showing strongly are Travel & Leisure, and Technology, up 12% and 11% respectively. In view of the myriad problem airlines have been facing up to this year – not least the volcanic ash cloud which caused weeks of disruption – it is at first glance somewhat surprising that the Travel & Leisure sector has performed strongly. However, during times of economic uncertainty, investors will often gravitate to traditionally defensive stocks, and this sector's largest firm by market capitalisation is the defensive, catering contracting group Compass, which has seen its share price rise to highs not witnessed since 2001.
Lagging sectors
There are also three sectors in the FTSE 350 faring rather less favourably in the first six months of 2010 – Insurance, Oil & Gas and Utilities. The insurance sector's performance can significantly be characterised by the performance of Prudential, which makes up around a quarter of the sector's weighting. Over recent weeks the Pru has been dogged by its controversial and ultimately unsuccessful attempt to buy AIA's Asian assets – with shareholders less than impressed by the £450 million spent funding the deal.
It's a similar scenario in the Oil & Gas sector, where BP’s calamitous oil spill has been a heavy influence on the sector's overall loss of 8% in the first half. BP accounts for even more of its sector's weighting than Prudential – around 34%.
Like Oil & Gas, the Utilities sector also lost 8% in the period to June; and again it is the fortunes of one particular stock which is having a significant say. After its recently launched rights issue, National Grid has seen its share price take a severe dip – at the beginning of the year its price was above 600p, but it is now below 500p, levels not seen since last summer.
Knowing your sectors
It is clear that some sectors are heavily influenced by one or two stocks whose market capitalisation makes up a large proportion of the sector as a whole – clearly this applies to Oil & Gas sector, where beleaguered BP makes up a third.
This means it is crucial to know what is going on in a particular sector. For example, four weeks ago you might have felt that the Oil & Gas sector was due to benefit from increased consumption and rising oil prices, but you would also have noted that BP’s crisis could well send its own share price tumbling. As such, you may have chosen to go long on the entire sector, while simultaneously shorting the individual share that looked set to fall.
Take a position
Whether you believe UK-listed companies are due to make gains or look set to be hit by unfavourable economic conditions, it is easy to go long or short on a range of indices, sectors or shares with IG Index.
Choose from a full range of daily and future bets on our extensive range of global indices, which include all the major UK, European, US and Asian markets.
You can take a more specific view by using our 35 sector bets based on the FTSE 350 – including Industrial Engineering, Gas, Water & Utilities and Oil & Gas Producers, plus the ever-topical Banking and Mining sectors.
You can also learn more about spread betting on individual shares, or simply apply online to start spread betting today.
Updated: 09/06/10
Source: [1] The Daily Telegraph (1 June 2010)
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.