2016: Best and worst performances

Laith Khalaf, senior analyst at Hargreaves Lansdown, looks back on the best and worst-performing shares of 2016.

2016: Best and worst performances

Despite a dreadful start, 2016 has been the year of the mining giants which have benefited from the dual tail winds of rising commodity prices and a falling pound.

However, although the share price of Anglo American has quadrupled this year, this has still only repaired the damage done over the course of 2015, and the company is still trading at roughly a third of the value it reached at its peak in 2008, amply demonstrating why the sector falls firmly in the camp of cyclical stocks.

Morrison has also seen a turnaround in fortunes, as has Tesco which has seen its share price rise by 38% this year. The supermarkets have seen transaction volumes increasing, although food price deflation is still chipping away at profitability.

Looking forward into 2017, the sector faces a new challenge from the rising cost of imported food, thanks to the fall in sterling, which will probably apply pressure to margins against such a competitive backdrop.

Top 10 shares (FTSE 100)

% price change
Anglo American PLC 301.6%
Glencore PLC 209.0%
BHP Billiton PLC 78.4%
Fresnillo PLC 66.7%
Rio Tinto PLC 60.0%
Wm Morrison Supermarkets PLC 53.8%
Antofagasta PLC 53.6%
Smiths Group PLC 50.2%
Royal Dutch Shell PLC 45.1%
Ashtead Group PLC 43.8%

31st December 2015 to 14th December 2016

The bottom of the FTSE has a distinctly Brexit flavour to it, as economic concerns have damaged expectations for airlines, retailers and the construction industry.

The worst performer, Capita, issued a profit warning in September when it transpired its business customers were putting off business decisions, probably a result of the Brexit vote. This was compounded by rising debt levels, operational delays on the IT systems for London’s congestion charge, and a contractual dispute with the Co-op bank.

It’s been another annus horribilis for Royal Bank of Scotland following a failed stress test, delays in offloading Williams & Glyn, and yet more litigation costs. The bank has lost a third of its value since the start of the year and in July, RBS shares traded at their lowest price since 2009. While the stock has since recovered a bit of its poise, the share price still needs to more than double from here before the taxpayer breaks even on the bailout.

2017 has its fair share of challenges in store for RBS too, with the continuing struggle to spin off Williams & Glyn, further restructuring costs, and the prospect of a multi-billion dollar fine in the US all hanging over the bank, and keeping a return to private ownership firmly in the long grass.

Bottom 10 (FTSE 100)

Price change
Barratt Developments PLC -27.4%
Travis Perkins PLC -27.9%
Royal Bank of Scotland Group PLC -28.0%
International Consolidated Airlines Group -28.9%
ITV PLC -29.5%
Dixons Carphone PLC -31.5%
Mediclinic International PLC -32.8%
Next PLC -33.2%
easyJet PLC -43.6%
Capita PLC -60.5%

31st December 2015 to 14th December 2016

Best and worst performing funds

This year has seen resources funds rise to the top of the performance table, particularly those with gold exposure. The gold price has risen $70 in 2016, and when you factor in a 15% fall in the pound against the dollar, that has left investors in gold and gold mining companies with a healthy return over the course of the year.

Low interest rates and political upheaval continue to be supportive of the yellow metal. Resource-heavy countries like Russia and Brazil have also prospered in 2016.

Total Return
WAY Charteris Gold & Precious Metals 123.5%
Junior Gold 119.6%
HSBC GIF Russia Equity 85.6%
SF Webb Capital Smaller Companies Gold 85.1%
Smith & Williamson Global Gold & Resources 82.1%
JPM Natural Resources 80.6%
CF Canlife Global Resource 74.4%
Investec Global Gold 72.8%
HSBC GIF Brazil Equity 72.7%
CF Ruffer Gold 71.1%

31st December 2015 to 14th December 2016

The bottom of the fund performance table in 2016 does nothing to assuage concerns that absolute return funds may not live up to their billing. While all three funds at the bottom of the table have better long term performance, the numbers show the journey to absolute returns can be anything but a smooth ride.

While all absolute return funds target a positive return over at most three years, they go about their business in very different ways and with varying levels of risk, so it’s particularly important not to judge a book by its cover when picking funds from this sector.

Elsewhere a couple of property funds find themselves languishing near the bottom of the performance table, after the summer saw billions of pounds of investors’ money frozen, as funds suspended trading while they sold properties to meet demand for withdrawals.

While some order has now returned to this sector, the underlying risk of another big freeze remains if we see another run on commercial property funds. Meanwhile managers are holding high levels of cash to try to avoid running into problems, which will act as a drag on investor returns

Main markets

UK investors in overseas stock markets find themselves quids in from the demise of the pound this year, even in markets which have gone sideways. For instance the Japanese stock market has risen just 1.5% this year, but UK investors have enjoyed a 23% return thanks to currency movements.

Investors in the US and Emerging Markets will be pleased as punch with how 2016 has turned out, having benefited from a double whammy of strengthening stock markets and positive currency movements, bagging them a 31% return over the course of 2016.

On the UK stock market, big has been beautiful this year, as larger stocks have benefited from non-sterling revenues and international exposure at a time when there is doubt about the near-term prospects for the domestic economy.

As ever dividends prove to be an important component of returns, equating to around £1 in every £4 returned to FTSE 100 investors in 2016, and that’s against a backdrop of strongly rising share prices. Small caps have also put in a strong performance, with mid caps falling some considerable distance behind.

UK gilts have had a roller coaster year, which has seen yields fall to new records and then pick right back up again. Since peaking at the beginning of August, gilt prices have fallen back as yields have risen from 0.5% to 1.5%. Indeed, this has been the most volatile year for UK gilts since 2009, when interest rates were cut to 0.5% and QE was introduced.

Total Return
for UK investors in local currency
FTSE 100 15.8% 15.8%
FTSE 100 (with no dividends) 11.3% 11.3%
FTSE 250 4.3% 4.3%
FTSE Small Cap 11.7% 11.7%
FTSE All-Share 13.7% 13.7%
MSCI Europe ex UK 15.4% 1.5%
S&P 500 30.6% 12.6%
Topix (Japan) 23.1% 1.5%
MSCI Emerging Markets 30.6% 10.3%
FTSE UK Gilts 8.2% 8.2%
Gold 26.9% 9.4%

31st December 2015 to 12th December 2016

Managed funds

The average UK stock market fund has underperformed the FTSE All Share this year by 5%. The average UK All Companies fund has returned 8.7% compared to 13.7% from the FTSE All Share.

This is to be expected in a year when the mega-caps have done so well, as active managers tend to be underweight the FTSE 100, particularly the very biggest stocks, and overweight the FTSE 250, which has fallen behind the blue chips in 2016. (Around 90% of funds in the IA UK All Companies sector are active).

No doubt the debate over active and passive management will continue into 2017 and beyond. The reality is that both are useful tools, however investors should make sure the active funds in their portfolio are run by high calibre managers, and not benchmark huggers, otherwise they might as well go passive.

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