Stocks with the worst recent annual performance

The following table shows the 13 FTSE All-Share stocks that have had the highest number of consecutive negative annual returns to end 2014. The last column gives the number of years of consecutive negative returns.

For example, First Group has not had an up year since 2007, and so has had seven consecutive years of negative returns up to 2014.

Company TIDM Index Consec -ve Yrs
FirstGroup FGP FTSE Mid 250 7
Tesco TSCO FTSE 100 5
Aquarius Platinum Ltd AQP FTSE Small Cap 5
Hardy Oil & Gas HDY FTSE Small Cap 5
BlackRock Latin American Investment Trust BRLA FTSE Small Cap 4
Anglo American AAL FTSE 100 4
BlackRock World Mining Trust BRWM FTSE Mid 250 4
Anglo Pacific Group APF FTSE Small Cap 4
Premier Oil PMO FTSE Mid 250 4
City Natural Resources High Yield Trust CYN FTSE Small Cap 4
BlackRock Commodities Income Investment Trust BRCI FTSE Small Cap 4
Ferrexpo FXPO FTSE Small Cap 4
Hansard Global HSD FTSE Small Cap 4

 

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Stocks with the best recent annual performance

The following table shows the seven FTSE All-Share stocks that have had the highest number of consecutive positive annual returns to end 2014. The last column gives the number of years of consecutive positive returns.

For example, Dechra Pharmaceuticals has not had a down year since 2003, and so has had 12 consecutive years of positive returns up to 2014.

Company TIDM Index Consec +ve Yrs
Dechra Pharmaceuticals DPH FTSE Mid 250 12
Compass Group CPG FTSE 100 9
Worldwide Healthcare Trust WWH FTSE Mid 250 8
Booker Group BOK FTSE Mid 250 8
Barr (A G) BAG FTSE Mid 250 7
Biotech Growth Trust (The) BIOG FTSE Small Cap 7
BTG BTG FTSE Mid 250 7

After these seven stocks, there have been 34 FTSE All-Share stocks that have had positive annual returns for the past six years.

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Strong/weak sectors in January

Strong sectors

The table below lists the sectors that have historically out-performed the market in January.

Sector TIDM
Construction & Materials
Electronic & Electrical Equipment
General Industrials
Health Care Equipment & Services
Media

Weak sectors

The following table lists the sectors that have been weak in January.

Sector TIDM
Beverages
Food & Drug Retailers
Food Producers

 

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Shares that like/dislike January

Shares that like January

The following table lists the five FTSE 350 shares that have the best returns in January over the last ten years. For example, Computacenter has an average return of 9.3% for the month of January. All stocks have risen in January for nine of the past ten years.

Company TIDM Avg(%)
Computacenter 9.3
CSR 8.1
Electra Private Equity 6.8
St James’s Place 5.6
Euromoney Institutional Investor 4.4

Shares that dislike January

The following table lists the five FTSE 350 shares that have the worst returns in January over the last ten years. For example, Unilever has an average return of -3.2% for the month of January. All five stocks have fallen in eight of the past ten years in January.

Company TIDM Avg(%)
Berkeley Group Holdings (The) -4.7
Tesco -4.3
GlaxoSmithKline -3.3
Unilever -3.2
Dairy Crest Group -3.2

An equally-weighted portfolio of the above strong January stocks would have out-performed every year an equally-weighted portfolio of the above weak January stocks by an average of 10.5 percentage points in January for the past ten years.

 

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The Stock Market in January

Generally, January is a very good month for investors. A recent academic paper (Vichet Sum, 2013) found that January has the second strongest average monthly returns for 70 world markets, and has been the strongest month of the year for 16 of those markets.

However, this is no longer the case in the UK. Although January used to the strongest month of the year for the UK stock market (with an average month return of 4.5% for the period 1970-1999), this changed after the dot-com crash. Since 2000 the average month’s return has fallen to -1.8% and the market has risen in this month in only five years since 2000 – making January the weakest month of the year in the last few years.

Monthly returns of FTSE All Share Index - January (1982-2014)January follows the strongest two-week period of the year (the second half of December); and this exuberance traditionally carries over into the first few days of January as the market continues to climb for the first couple of days. But by around the fourth trading day the exhilaration is wearing off and the market then falls for the next two weeks – the second week of January has been the weakest week for the market in the whole year. Then, around the middle of the third week, the market has tended to rebound sharply.

January effect

The month is better for mid-cap and small-cap stocks. On average, since 2000 the FTSE 250 Index has outperformed the FTSE 100 by 2.2 percentage points in January – the best out-performance (with February) of all months. Small caps do even better, out-performing the FTSE 100 by an average 2.7 percentage points in the first month. The out-performance of small-cap stocks in this month has been the subject of many academic studies and is called the January Effect.

There are two other interesting anomalies in the month (that are also sometimes, and confusingly, called the January Effect). The first is a famous market predictor in the US which holds that the direction of the market in the whole year will be the same as that for the first five days of January. Research shows that the same rule works more or less for the UK market as well. The third effect comes from a U.S. paper written in 1942 which proposed that stocks rose in January as investors began buying again after the year-end tax-induced sell-off. As noted above, that has been less true in recent years.


Article first appeared in Money Observer

Further articles on the market in January.

 

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First five trading days of the year

Since 1985 the FTSE 100 Index has increased on average 0.50% over the first five trading days of the new year.

The following chart shows the market returns for the first five trading days for all years from 1985. For example, over the first five days of 1985 the index rose 0.89%.

Average FTSE 100 return over first 5 trading days of the yearThe following chart shows the daily returns for the FTSE 100  for each of the five days in the new year. For example, on average since 1985 the index has risen 0.40% on the first trading day of the year.

First five trading days of the year [1985-2014]

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The FTSE 100/S&P 500 monthly switching strategy

Although since 1984 the S&P 500 has overall greatly out-performed the FTSE 100 (+1021% against +575%), there are months in the year when the FTSE 100 fairly consistently out-performs the S&P 500.

The following chart shows the monthly out-performance of the FTSE 100 Index over the S&P 500 Index since 1984.

Comparative average monthly returns of FTSE 100 v S&P 500 [1984-2014]Looking first at the orange grey bars in the chart, this shows, for example, that on average in January the FTSE 100 has out-performed the S&P 500 by -0.6 percentage points (i.e. the UK index has under-performed the US index in that month). From the chart we can see that the five months that are relatively strong for the FTSE 100 are: February, April, July, August and December. For example, the FTSE 100 has out-performed the S&P 500 in February in 13 of the past 15 years.

Now, turning to the bown bars, these display the same average monthly out-performance of the FTSE 100 over the S&P 500, except this time the S&P 500 Index has been sterling-adjusted. One effect of adjusting for currency moves is to amplify the out-performance of the FTSE 100 index in certain months (April, July, and December). Conversely, the FTSE 100 under-performance is amplified in January, May and November.

Whereas, before, the relatively strong FTSE 100 months were February, April, July, August and December, we can see that the currency-adjusted strong months are just April, July, and December.

The FTSE 100/S&P 500 monthly switching strategy (FSMSP)

The above results suggest a strategy of investing in the U.K. market (i.e. the FTSE 100 Index) in the months April, July and December and in the U.S. market (i.e. the S&P 500 Index) for the rest of the year. In other words, the portfolio would be invested in the S&P 500 from January to March, at the end of March it switches out of the S&P500 into the FTSE 100 for one month, then back into the S&P 500 for two months, into the FTSE 100 for July, back into the S&P 500 for four months, then back into the FTSE 100 for December, and finally back into the S&P 500 to start the next year.

The following chart shows the result of operating such a strategy from 2000. For comparison, the chart also includes the portfolio returns from continuous investments in the FTSE 100 and S&P 500.

FTSE 100-S&P 500 monthly switching strategy [2000-2014]The final result: the FTSE 100 portfolio would have grown 7%, the S&P 500(£) risen 32%, but the FTSE 100/S&P 500 monthly switching portfolio (FSMSP) would have increased 114%. Switching six times a year would have incurred some commission costs, but these would not have dented performance significantly.


UK Stock Market Almanac cover [160 x 240]The above is an extract from the newly published UK Stock Market Almanac 2015.

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Monthly seasonality of GBPEUR

The euro was introduced as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1. On 1 January 2002, physical euro coins and banknotes entered into circulation.

The following chart plots the GBPEUR exchange rate from 1975. (NB. The GBPEUR rate has been back-calculated to 1975.)

GB sterling-Euro (GBPEUR) rate [1975-2014] 2The month closing high for the rate was 1.9234 in January 1981; and the month closing low was 1.0341 in December 2008.

Monthly seasonality

The following charts look at the monthly fluctuations in GBPEUR.

The chart below shows the average monthly returns for GBPEUR for the period 1975-2014. For example, on average the rate has risen 0.80% in January.

GBPEUR monthly average return [1975-2014]From the above chart it can be seen that since 1975 the strongest month for GBPEUR has been January, followed by April and July. Whereas the weakest month has been September (-1.05%), followed by February and December.

To see if there has been any change to this monthly seasonality since 1999 (i.e. since the euro was introduced as an accounting currency), the following chart plots the average monthly rate changes in GBPEUR for the period 1999-2014.

GBPEUR monthly average return [1999-2014]For this shorter period, it can be seen that January (+1.20%) is still the strongest month followed by, still, April and July (although April has been stronger and July weaker since 1999). On the other side, December (-1.25%) has become the weakest month (September has had close to a zero average change since 1999), with the other week months being November and February.

The following chart plots the proportion of positive returns for GBPEUR for each of the 12 months.

GBPEUR monthly positive return [1999-2014]The observations here largely correlate with those for the average changes. Namely, since 1999-

  • The two strongest months for GBPEUR have been: January and April,
  • The three weakest months for GBP have been: February, November, December.
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Market fall 8-12 December 2014

Last week the FTSE 100 Index fell 442 points (-6.6%), losing £121bn in market capitalisation. It was the largest weekly fall since August 2011, and the 14th largest weekly fall ever for the FTSE 100 Index (created in 1984).

The following chart shows the 10 FTSE 100 stocks that fell the most last week.

FTSE 100 fall 8-12 Dec 2014 [by price]

Petrofac shares were down 12.9% last week, the largest faller, followed by Tesco (-12.6%).

The following chart shows the 10 stocks that saw the greatest absolute falls in market capitalisation – i.e. these were the stock that had the greatest impact on the FTSE 100 Index. The chart shows the proportion of the 442 point fall in the FTSE 100 Index that was attributable to each stock. For example, 10.3% (46 points) of the FTSE’s fall last week was due to the fall of the share price of Shell.

FTSE 100 fall 8-12 Dec 2014 [by mkt cap]

The above 10 companies accounted for 47% of the FTSE 100 fall.

The following table shows the three sectors that were most responsible for the FTSE 100 fall last week.

Sector MktCap lost (£m)
Oil & Gas 22,820
Banks 17,227
Mining 12,029

 

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Correlation of UK and international stock markets

The following charts show the correlation of monthly returns between the FTSE All-Share index and six international indices for the period 2000-2014.

 


 

Correlation of FTSE All-Share Index and DAX [2014]


Correlation of FTSE All-Share Index and CAC40 [2014]


 

Correlation of FTSE All-Share Index and Nikkei 225 [2014]


 

Correlation of FTSE All-Share Index and Hang Seng [2014]


 

Correlation of FTSE All-Share Index and All Ordinaries [2014]


 

Correlation of FTSE All-Share Index and Bovespa [2014]


Analysis

The first observation is that all the markets are positively correlated with the UK market.

The next question is how closely correlated are they?

The following table summarises the R2 values for the correlation between the FTSE All-Share Index and the six international indices; the equivalent values are also given for the previous year. The higher the R2 figure the closer the correlation (R-Squared is a measure of correlation – in effect, how close the points are to the line of best fit).

Index R2 R2 (2013)
CAC40 0.78 0.79
DAX 0.69 0.70
All Ordinaries 0.61 0.62
Hang Seng 0.48 0.49
Bovespa 0.45 0.47
Nikkei 225 0.37 0.39

By visual inspection it can be seen that in the charts of CAC40 and DAX the points are more closely distributed around the line of best fit. This is confirmed in the table where it can be seen these two markets have the highest R2 values with the FTSE All-Share (the CAC40 value of 0.78 is now higher than that of 0.76 for the S&P 500). The index with the lowest correlation with the UK market (in the sample) is the Nikkei.

The practical impact of this is that if a UK investor is looking to internationally diversify a portfolio they would do better by investing in markets at the bottom of the table (low R2) than at the top. And the good news for investors looking for diversification is that the correlation between the UK market and all the international markets in this study has fallen in the past year.

See also correlation between the US and US stock markets.


UK Stock Market Almanac cover [160 x 240]The above is an extract from the newly published UK Stock Market Almanac 2015.

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