Bouncebackability – is buying the worst FTSE 100 performers of last year a good investment strategy?

News & comments

2 January 2024

Rob Burgeman, senior investment manager, RBC Brewin Dolphin

“There are a range of strategies investors employ to try and maximise their returns. Many take a ‘value’ approach, where they identify companies that are fundamentally sound, but have seen their share prices decline on the back of some temporary bad news or developments beyond their control.

“That leads some investors to look through the worst performing stocks in any given year and look for opportunities. As last year’s list shows, that would have worked out for you in 2023, with an average total return – combining capital change and dividend – of +43% among the FTSE 100’s worst performers from 2022. That is significantly higher than the index’s +3.07% return over the same period.

  2022 2023 YTD
Ocado -63.15% +24.32%
Dechra -50.46% +47.53%
M&S -47.13% +115.36%
Barratt Developments -46.74% +51.11%
Segro -46.79% +19.31%
Scottish Mortgage -46.06% +10.14%
JD Sports -42.24% +37.65%
Taylor Wimpey -41.98% +53.81%
Howden -38.96% +50.14%
Halma -38.49% +16.76%
Average -46.20% +42.61%
FTSE 100 +0.66% +3.07%

Source: Bloomberg

“But it is rarely that simple – you have to ask yourself whether these are companies you want to own for the long term and whether the share price fall is more than just a temporary blip. Ocado, for example, lost nearly two-thirds of its value in 2022, but that didn’t stop its share price falling another -7% in the first 11 months of 2023 before its recent rally. Plus, you are also relying on timing and, as the old adage goes, it’s time in the market – not timing it – that matters.

“It does, however, reveal some interesting opportunities. The weakness in Dechra’s share price led to a larger peer acquiring the company. JD Sports and Taylor Wimpey are solid companies that bounced back. Marks & Spencer has gone through a long and arduous turnaround that is now beginning to yield results. But, it’s also worth remembering that the majority have not regained the ground they lost during 2022.”

Who are the FTSE 100’s worst performers this year?

  30/12/22-20/12/23
Anglo American – 41.84%
St James’s Place – 38.54%
Fresnillo – 36.17%
BAT – 28.72%
Burberry – 26.72%
Croda – 23.32%
Entain – 23.12%
Prudential – 23.07%
Diageo – 21.73%
Beazley – 21.34%
Average -28.46%
FTSE 100 3.07%

Source: Bloomberg

“The worst performers of this year have thrown up some similarly interesting names. Diageo is a strong company, with a broad range of premium alcohol brands in its stable and a runway for growth in a fragmented sector. Its shares slumped on a sudden change in leadership and a profits warning on the back of slowing sales in Latin America that spooked investors, but it remains a fundamentally well-run business.

“Chemicals company Croda is another sound business that has suffered this year. A rare profits warning saw its shares fall significantly, presenting a potential buying opportunity for patient investors.

“Prudential has seen a big reverse in its share price after investors were initially positive about its prospects following a major business restructure. If you feel concerns over its exposure to a slowing Chinese economy are overdone, it could be an interesting prospect.

“Nevertheless, there are some less appealing names on there too. Anglo American, Fresnillo, and British American Tobacco obviously have their ethical baggage, as may Entain for those opposed to gambling companies.”

The importance of diversification

“The mixed fortunes of all the companies mentioned underline the importance of diversification. Our research earlier this year found the odds of selecting the single best-performing asset class from a set of seven categories over 10 years are one in 282 million – twice as high as your chances of winning the EuroMillions jackpot. When you have hundreds, or even thousands, of stocks and funds to pick from, there is very little chance you will select the best performers, even with a basket of 10.

“A professional adviser will be able to guide you through how to construct a portfolio to match your financial objectives and appetite for risk. As the last few years have shown, what is in favour today can easily become massively unpopular tomorrow, and the right spread of exposure to different assets will make sure you remain focussed on your long-term goals and shield you from short-term noise.”

– ENDS-

Rob Burgeman and his fellow investment managers at RBC Brewin Dolphin put together bespoke investment portfolios for clients based on their long-term objectives and their attitude to risk. The portfolios will have a mixture of hand-picked holdings in them including third party funds and individual stocks that are researched and recommended by RBC Brewin Dolphin’s in-house research team.

  2018 2019 2020 2021 2022
Ocado + 98.94 + 61.90 + 78.81 – 26.63 – 63.24
Dechra – 0.12 + 41.88 + 220.02 + 55.75 – 50.09
M&S – 16.26 – 4.70 – 36.16 + 69.77 – 46.72
Barratt Developments – 22.18 + 74.11 – 10.26 + 16.43 – 47.47
Segro + 3.06 + 56.77 + 8.70 + 55.07 – 47.76
Scottish Mortgage + 4.63 + 24.76 + 110.49 + 10.46 – 45.70
JD Sports + 4.15 + 140.75 + 2.70 + 26.83 – 41.85
Taylor Wimpey – 28.43 + 58.71 – 14.27 + 11.27 – 36.92
Howden – 4.53 + 57.95 + 2.53 + 34.39 – 35.83
Halma + 9.47 + 56.36 + 16.58 + 31.48 – 37.73
St James’s Place – 19.72 + 29.44 – 0.37 + 55.33 – 31.99
Fresnillo – 38.29 – 24.03 + 78.92 – 18.75 + 3.93
Entain – 24.75 + 39.02 + 28.19 + 48.48 – 20.99
Anglo American + 18.15 + 30.62 + 16.25 + 35.23 + 15.03
Croda + 7.76 + 11.13 + 31.14 + 55.33 – 33.79
Burberry – 1.15 + 29.97 – 18.84 + 4.36 + 15.01
Diageo + 5.10 + 16.99 – 7.75 + 43.40 – 7.70
BAT – 47.17 + 38.29 – 9.71 + 9.20 + 28.15
Prudential – 24.40 + 24.66 – 4.94 – 4.34 – 10.36
Beazley – 3.79 + 12.81 – 33.41 + 27.89 + 49.61
FTSE 100 – 8.78 + 17.23 – 11.44 + 18.40 + 4.57

Source: Bloomberg

The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. For further information, please refer to our conflicts policy which is available on request or can be accessed via our website at www.brewin.co.uk. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Forecasts are not a reliable indicator of future performance.

RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444) and regulated in Jersey by the Financial Services Commission. Registered Office: 12 Smithfield Street, London, EC1A 9BD. Registered in England and Wales company number: 2135876. VAT number: GB 365 3456 40.

PRESS INFORMATION

For further information, please contact:

Peter McFarlane peter.mcfarlane@framecreates.co.uk / 07412 739 093

Richard Janes richard.janes@brewin.co.uk / Tel: +44 (0) 20 3201 3343

NOTES TO EDITORS

About RBC Brewin Dolphin

RBC Brewin Dolphin is one of the UK and Ireland’s leading wealth managers and traces its origins back to 1762. With £51.8* billion in assets under management, we offer award-winning, personalised wealth management services from bespoke, discretionary investment management to retirement planning and tax-efficient investing.

Our qualified investment managers and financial planners are based in 33 offices across the UK, Jersey and Republic of Ireland. They are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.

As part of Royal Bank of Canada (RBC), we are now able to draw on the strength of a global financial institution to continue to improve the service we provide to our clients and drive further innovation across our business.

*as at 31st October 2023.

Disclaimers

The value of investments can fall and you may get back less than you invested. RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444).

About RBC

Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 94,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank and one of the largest in the world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our more than 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com. We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/community-social-impact.


The value of investments and any income from them can fall and you may get back less than you invested.