Last year was so bad for investors that you could have been excused for turning to drink to drown your sorrows. In fact, that would not have been such a bad idea, as the relatively defensive beverage sector, which is dominated by global drinks groups Diageo and SABMiller, was the third best performing FTSE 350 sector, falling by 10 per cent in value in the past 12 months. In any normal year, losing 10 per cent of your capital would be seen as a disaster. But 2008 was anything but normal, with the FTSE 350 plunging by 44 per cent from the start of the year to its low point in October and ending 2008 down 33 per cent.
It was no surprise to see the pharmaceutical near the top of the leader board, as risk averse investors rotated funds into defensive, cash generative non-cyclical sectors. The attraction of the beverages and pharma sectors was given a further boost by the fall in sterling, which is positive for UK non-cyclical companies with high dollar exposure. These companies benefit the most from the translation effect when dollar and euro profits are converted back into sterling, but are less exposed to the downturn in the economy that is driving global interest rates lower. Strong free cash flows, relatively low levels of borrowings (so liquidity and distress risk is not an issue for investors) and healthy and safe dividend yields help explain why these two sectors held up the best last year.
However, top spot went to the non-life insurance sector, which is full of Lloyd's vehicles such as Amlin, Catlin, Brit and Hiscox. Investors have not been slow to take note of the strong upturn in the rating environment which is very good news for the well capitalised specialist insurers who are set to benefit. The sector has returned 8.6 per cent in the past 12 months.
The laggards were the usual suspects in a bear market that has punished investors holding shares in late cyclical and economically sensitive sectors such as mining and transport. The general financial sector, banks and life players were all in the bottom 10 sectors in the FTSE 350, as investors fled any finance-related sector in the face of the worst financial crisis since The Great Depression.
Looking ahead, the key asset allocation decision facing investors this year is which sectors to focus on bearing in mind that the consensus is for a strong rise in unemployment in 2009, a sharp contraction in corporate earnings, rising defaults on corporate debt and continued tightness in the credit markets. So to help you spot the winners and position your portfolios in the right direction in the year ahead, we have analysed every single FTSE 350 sector and provided key data on all the companies (share price, market value, PE ratio, dividend yield, and the Investors Chronicle's most recently published recommendation on each company).
All these articles are free to access, and we'll publish a selection each day starting today and continuing next week. You'll find them linked from the box below.
If you want to read the whole lot now, you can - by purchasing a copy of this week's Investors Chronicle magazine (dated 16-22 Jan) at any good newsagent.
