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The Sunday Telegraph: FTSE fliers and failures in a topsy-turvy year

EXTRACT: Within energy, the relatively sluggish performance of the oil majors, BP and Shell, was offset by great years for Cairn and BG.

Last Updated: 1:13am GMT 16/12/2007

Tom Stevenson tells the very different stories of the sectors that make up the FTSE100

If ever there were a year when the FTSE100 index did not tell the whole story, it is the one now drawing to a close. With only a couple of weeks to go, the flagship measure of Britain’s stock market health is about 5 per cent higher than its starting point after bouncing around in a fairly tight range between 6,000 and 6,700. Compared with the tumult in the money markets, this looks to have been a relatively dull year for stocks.

Scratch the surface, however, and a rather different picture emerges. This has been a year of amazingly divergent performances, both between different sectors and within sectors between different companies. If you made the right call in January, you will be looking back on a fantastic year; if you invested in the wrong part of the index, it’s been a stinker.

As the table of individual returns shows, there has been an unusually even spread of performance across a very wide range, nothing like the statisticians’ usual bell curve that clusters most returns in the middle, with a small number of outriders.

The worst performing share in the top flight so far this year has, unsurprisingly, been Northern Rock, which has fallen by more than 90 per cent since January. At the other end of the scale, Rio Tinto tops the list of climbers with a rise of 113 per cent after a takeover approach from BHP Billiton topped an already excellent year for miners.

These are not isolated cases, however. Five stocks have risen by more than 50 per cent, an unusually large rise for companies within the blue-chip index, belying the FTSE100’s steady image. More than a quarter of the biggest companies have increased in value by more than 20 per cent over the year, while more than a fifth have fallen by as much.

But the more interesting part of our dissection of the FTSE100 index this year lies in the divergent fortunes of different sectors. Even within broad areas there have been wildly different returns.

In the main, 2007 has been a year to forget for the financial sector, the biggest contributor to the index by number of companies (there are 21). Worst hit have been mortgage banks such as Alliance & Leicester, Bradford & Bingley and HBOS. Dragged down by Northern Rock, this sub-sector notched up a fall of 49 per cent over the year as the sub-prime mess crossed the Atlantic.

The high street banks, such as Lloyds TSB and Barclays, had a better year by comparison, but a 20 per cent fall is still an awful result. Meanwhile, insurers such as Friends Provident, Legal & General and the Pru have little to celebrate either, with falls of 9 per cent on average.
Gary Haigh [left] GM European Exports of SABMiller and Tomasso Alessandri of Peroni can drink to a good year

The result for more overseas-focused banks is rather misleading, as it is formed by an average of the 31 per cent rise at Standard Chartered and the 8 per cent fall at HSBC. The former benefited from its exposure to booming emerging markets while the latter has paid the price for backing low-grade American borrowers. Among the specialists, Man Group and 3i were given a boost by Michael Spencer’s Icap, which has had a storming year, up 37 per cent so far.

The other catastrophic investment choice at the start of this year was property, although as the sector embraced tax-efficient real estate investment trusts (Reits), few investors understood the scale of the unwinding to come.

The 33 per cent average fall for the commercial investors and developers actually understates the pain felt by companies such as Hammerson and British Land as investors came to the realisation that slowing rental growth and income yields below the cost of borrowing were a recipe for falling capital values.

From peak to trough, the best performance in the sector, from Liberty International, was a 27 per cent fall, while the worst, Segro (Slough Estates as was), saw a slump of 54 per cent.

Having fallen first and fastest, the property sector has, however, turned the corner ahead of the still fragile financials. The smallest bounce since the recent trough comes from Land Securities, which is up by 12 per cent, while Segro and British Land have each risen by 19 per cent. And Hammerson, buoyed by persistent takeover rumours, has recovered by 21 per cent.

With property stocks standing at their biggest discount to the underlying value of their portfolios for 20 years, according to Lehman Brothers, the worst of the slump could be over.

The outstanding performances in 2007 came from the most basic of old-economy stocks, those that satisfy the seemingly incessant demand for the building blocks of industry: metals and energy.

The importance of mining to the FTSE100, and its relative indifference to the domestic economy, are shown by the eight global companies in the sector, none of which lost money for investors as the City continued to play catch-up with the unfolding commodities super-cycle. Within energy, the relatively sluggish performance of the oil majors, BP and Shell, was offset by great years for Cairn and BG.

Less obvious calls had big implications for investors this year. Among the six companies feeding our vices, it made a huge difference whether you backed companies manufacturing the drinks and cigarettes or those selling them. BAT, Imperial Tobacco, SABMiller and Diageo, with their still buoyant international markets, notched up an average gain of 21 per cent, while Enterprise Inns and Whitbread fell by the same amount as British consumers reacted to 18 months of monetary squeeze.

Within retail, backing the supermarkets paid off handsomely while the rest of the high street bore the brunt of belt-tightening.

Finally, with 10 of the 100 top companies acquired during the year (or in the process of being taken over), there was a reasonable chance of catching the average 24 per cent gain registered by the target companies. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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