UK stock market shows a shift toward defensives as tough year draws to an end

Russ Mould
21 December 2018

“There is an old market saying that ‘A bad stock in a good sector will outperform a good stock in a bad sector,’ so spotting strong trends here as 2018 draws to a close could help investors plan for 2019 and beyond,” says Russ Mould, AJ Bell Investment Director.

“For the year to date, just six of the 39 industrial groupings which make up the FTSE All-Share are showing a gain and the best performer, Technology Hardware, has a market cap of less than £1 billion, so it is so small as to be barely relevant.

2018 FTSE All-Share performance

Top 10

 

 

Bottom 10

 

 

 

 

 

 

Technology Hardware

30.5%

 

Household Goods & Home Construction

 (20.7%)

Industrial Metals

12.2%

 

Food Producers

 (21.0%)

Pharmaceuticals & Biotechnology

11.3%

 

General Industrials

 (21.2%)

Food & Drug Retailers

1.9%

 

General Retailers

 (25.6%)

Beverages

1.7%

 

Life Insurance

 (25.7%)

Media

0.6%

 

Construction & Materials

 (26.5%)

Personal Goods

 (1.3%)

 

Software & Computer Services

 (28.4%)

Equity Investment Instruments

 (5.1%)

 

Mobile Telecoms

 (32.2%)

Non-life insurance

 (7.1%)

 

Industrial Transportation

 (33.1%)

Oil & Gas Producers

 (7.8%)

 

Tobacco

 (44.2%)

 

 

 

 

 

FTSE All-Share (13.2%)

Source: Refinitiv data, 1 January to 18 December 2018

“That shows how hard it has been for investors to make money from UK stocks this year and a study of sector performance trends on a quarter-by-quarter basis shows how confidence has ebbed away during the course of 2018.

2018 FTSE All-Share performance by quarter

Top 10

 

 

Bottom 10

 

 

 

Q1

 

 

Automobiles & Parts

42.7%

 

Mining

 (8.8%)

Technology Hardware & Equipment

31.2%

 

Leisure Goods

 (10.0%)

Industrial Metals & Mining

8.8%

 

Oil Equipment, Services & Distribution

 (10.5%)

Industrial Transportation

3.1%

 

General Retailers

 (10.8%)

Chemicals

2.8%

 

Household Goods & Home Construction

 (11.9%)

Health Care Equipment & Services

2.7%

 

Food Producers

 (15.1%)

General Industrials

0.8%

 

Fixed Line Telecommunications

 (16.5%)

Aerospace & Defense

0.8%

 

Mobile Telecommunications

 (17.3%)

Food & Drug Retailers

 (0.1%)

 

Tobacco

 (17.8%)

Forestry & Paper

 (0.9%)

 

Software & Computer Services

 (29.6%)

FTSE All Share (7.3%)

 

 

 

 

 

 

 

Q2

 

 

Food & Drug Retailers

29.3%

 

Household Goods & Home Construction

0.5%

Oil & Gas Producers

17.7%

 

Banks

0.0

Oil Equipment, Services & Distribution

14.8%

 

Technology Hardware & Equipment

0.0

Support Services

14.2%

 

Health Care Equipment & Services

 (0.7%)

Software & Computer Services

13.7%

 

Automobiles & Parts

 (1.4%)

Food Producers

12.6%

 

Industrial Transportation

 (2.1%)

Media

12.6%

 

Life Insurance

 (2.7%)

Aerospace & Defense

12.0%

 

Tobacco

 (2.8%)

Forestry & Paper

10.7%

 

Mobile Telecommunications

 (4.2%)

Beverages

10.7%

 

Fixed Line Telecommunications

 (4.8%)

FTSE All Share 6.7%

 

 

 

 

 

 

 

Q3

 

 

Leisure Goods

24.1%

 

Gas, Water & Multi-utilities

 (5.8%)

Oil Equipment, Services & Distribution

20.1%

 

Food & Drug Retailers

 (6.1%)

Industrial Metals & Mining

16.6%

 

Banks

 (6.2%)

Technology Hardware & Equipment

14.7%

 

Tobacco

 (6.5%)

Pharmaceuticals & Biotechnology

7.3%

 

Real Estate Investment & Services

 (6.5%)

Household Goods & Home Construction

5.8%

 

General Retailers

 (8.0%)

Chemicals

4.0%

 

Food Producers

 (8.2%)

Forestry & Paper

3.7%

 

Mobile Telecommunications

 (12.4%)

Fixed Line Telecommunications

3.3%

 

Electricity

 (12.7%)

Equity Investment Instruments

2.8%

 

Industrial Transportation

 (14.3%)

FTSE All Share (1.1%)

 

 

 

 

 

 

 

Q4

 

 

Fixed Line Telecommunications

8.4%

 

Aerospace & Defence

 (20.2%)

Beverages

0.4%

 

Construction & Materials

 (20.3%)

Mobile Telecommunications

(1.9%)

 

Chemicals

 (21.0%)

Pharmaceuticals & Biotechnology

(3.2%)

 

Industrial Transportation

 (22.9%)

Personal Goods

(3.3%)

 

General Industrials

 (24.2%)

Gas, Water & Multi-Utilities

(4.7%)

 

Tobacco

 (24.3%)

Mining

 (5.0%)

 

Forestry & Paper

 (24.7%)

Banks

 (6.3%)

 

Leisure Goods

 (26.8%)

Media

 (6.6%)

 

Oil Equipment, Services & Distribution

 (34.1%)

Non-life insurance

 (7.4%)

 

Autos & Parts

 (35.2%)

FTSE All Share (11.1%)

Source: Refinitiv data, 1 January to 18 December 2018

“As the going has got tougher, relatively defensive sectors such as Beverages, Pharmaceuticals and Personal Goods have come to the fore, while Fixed Line Telecoms, Mobile Telecoms and utilities have done a lot less badly than the wider market.

“This will be partly because they also have some defensive characteristics in that demand should be relatively predictable, at least relative to areas that are more sensitive to swings in the wider economy and consumer and industrial sentiment, even if they are hemmed in by regulators on one side and competitors and value-hungry customers on the other. 

“Those sectors had also already done badly for some time, to perhaps persuade value-seekers that a lot of the bad news was already in the price.

“By contrast, more cyclical sectors such as Construction & Materials, General Industrials, Forestry & Paper, Oil Equipment and Autos & Parts fell from grace in the fourth quarter. It is possible to bracket Industrial Transportation here, too, although this sector is now burdened with the woes of its largest constituent, Royal Mail, so it may not quite be the bellwether for the economy that it once was.

“The shift to defensives and, to a degree, toward value may suggest that investors will need to focus on downside protection as much as upside generation, at least in the early months of 2019, especially as the same cautious trends are evident on a global basis.

 
Source: Refinitiv data

“Using the S&P Global 1200 indices as a benchmark, the best performing sectors were also defensive in nature in 2018. Healthcare and Utilities topped the list of the 11 super-sectors while the worst were cyclicals and particularly Financials and Materials. This may suggest that someone, somewhere has doubts over whether the global economy and the global financial markets’ plumbing are in such good health after all.”

Follow us: