- Defence and banks stocks top table
- M&A wave creates big winners
- Consumer stocks on the skids
It hasn’t been a vintage year for the UK stock market, but there are signs investors are coming back attracted by the cheap valuations on offer compared with the US as well as decent earnings prospects for UK companies.
The FTSE 350 index is up 5.5% year-to-date, with the FTSE 100 large-cap benchmark up 5.6% just shading it from the FTSE 250 which is up 4% year-to-date.
TANKS AND BANKS THE WINNERS
The best-performing stock in the FTSE 100 has been Rolls-Royce (RR.), which continues its phoenix-like rise from the ‘burning platform’ inherited by chief executive Tufan Erginbilgiç with a 50% gain year-to-date.
Conflict in the Middle East, together with the ongoing war in Ukraine, has led to a widespread rally in defence stocks and mid-caps Babcock (BAB) and Qinetiq (QQ.) have also benefitted with their shares rising 31% and 43% this year.
The next-best big-cap performers are NatWest (NWG) and Barclays (BARC) which have gained 45% and 40% respectively as net interest margins have fattened up on the back of higher interest rates.
All the while the Bank of England sits on its hands and leaves interest rates where they are, the more money the banks are able to rake in from borrowers.
Finally, given the surge in M&A (merger and acquisition) activity in the UK due to cheap valuations, it isn’t a great surprise to see takeover candidates such as Britvic (BVIC), Darktrace (DARK), DS Smith (SMDS), Hargreaves Lansdown (HL.), Hipgnosis (SONG) and Spirent (SPT) among the ranks of the best performers.
CONSUMER STOCKS CHECK OUT
If there is a strong defence and financial bias to the first half’s winners, there is definitely a bias towards consumer stocks among the market’s worst performers.
Given this concentration it is tempting to wonder whether performance has been impacted by concerns over the cost-of-living crisis, but on closer inspection we believe there are clear company-specific issues at work.
At the bottom of the list is online retailer and grocery delivery firm Ocado (OCDO), freshly-demoted from the FTSE 100 and now slipping down the ranks of the FTSE 250 with a 60% loss year-to-date following a decision by Canadian client Sobeys to pause the rollout of more customer fulfilment centres.
Purveyors of ‘affordable luxury’, Burberry (BRBY) and Watches of Switzerland (WOSG), are down 40% and 42% respectively as consumers switch spending to travel and leisure, while retailers B&M European Value (BME) and JD Sports (JD.) are struggling with issues of their own.
Personal care stocks are also down in the dumps, with PZ Cussons (PZC) shares falling 34% and Reckitt Benckiser (RB.) shares down 22% year-to-date.
