The FTSE 350 review

Consequently, diversification within equities – rather than across asset classes – didn’t prove much of a successful investment strategy. But, then again, the lens of index performance tends to look better on a longer stretch than just one year. As Warren Buffett will tell you, staying invested over the long term tends to beat the chances of timing the market’s troughs and peaks. And on a 10-year scale, the FTSE 350 is still up by 67 per cent, excluding dividends.

Still, many stock market watchers will be staring at 2019 and wondering how to navigate the end of benign monetary policy and easy money, a cooling global economy, and endless global and domestic political headaches.

Confusion over the latter shows little sign of abating, and UK investors enter their fourth calendar year of Brexit-induced economic and political uncertainty. As market commentators and analysts have continually pointed out, the uncertainty that has dogged the UK economy has particularly hit domestic-leaning stocks. For evidence, we have the FTSE 250 index, which underperformed the top 100 blue-chip stocks by three percentage points in the last year.

By contrast, the international-facing businesses that predominate the FTSE 100 haven’t fared much better, and are beset by fears over global trade. Few expect 2019 to be a bumper year for global stocks, at least outside of so-called emerging markets.

So where does that leave investors? One answer, as our rundown of the FTSE 350’s myriad sectors suggests, is with stock selection. With some notable exceptions – tobacco, real estate, life assurance and perhaps base metals – the lesson of 2018 was that winners and losers exist within every sub-sector, and shouldn’t just be viewed through the collective performance of their peer group.

One corner of the index is likely to echo that view; excluded from our sector-by-sector guide are the 60 or so equity investment trusts within the FTSE 350, and whose collective negative return of 4.6 per cent over the past 12 months looks heroic compared with most sectors. The managers who pick those portfolios will have taken a similar approach to our companies writers, who in the pages that follow have tried to discriminate within their individual sectors, to identify favourites and outsiders.

Invariably, those picks look for relative strengths and weaknesses in sometimes fragmented industries. Among them are some contrarian takes. For example, we think the disruption and fierce competition within the European airline industry has disguised some sharply-discounted stocks. And on the subject of discounts, we remain bullish on real estate stocks in 2019, where a broad sell-off in the sector looks disconnected from some of the more differentiated business models. Finally, we think exposure to gold and silver miners should provide a useful leveraged hedge to turbulence elsewhere in the market, even if the sector suffers from its own fair share of political shocks and operational risks.

For investors who want a more quantitative driven approach to stock selection our Tips editor and stock screening specialist Algy Hall has run several screens identifying those FTSE350 companies with the strongest momentum, earnings and dividend forecasts, and cheapest valuations. Click the links below to access his results either in PDF or Excel format. 

Then again, you could just stick with momentum, and follow Roman Abramovich into Evraz, or the miniaturists into Games Workshop.

For James Norrington's assessment of the Best of the FTSE350 and his latest portfolio selection from the index, click here. 

For each sector review, click on the headlines below:

Banks braced for geopolitical tumult

Financial services battle rule changes

Asset managers' cushion removed

Life insurers' low rate challenge

Non-life insurance: competition and regulatory worries prevail

Housebuilders need to embrace modern practices

It remains wise to be selective with Reits

Real estate out of fashion

Mixed festive trading highlights high-street retail challenge

Mixed fortunes for clothing chains

Supermarket competition intensifies

Year of change for household goods

Restaurants and pubs face competitive market

Beverage companies have not lost their fizz

Turbulence in airlines and tourism

Reform on the horizon for UK rail?

Industrial transport valuations soften

Bookies face tough odds

Tobacco giants bet big on next-generation products

More regulation for telcos?

More M&A for media stocks?

Defence takes a direct reputational hit

Hope amidst uncertainty for software stocks

Engineering is slowing down

Electronics moving in different directions

Slim pickings in autos

Big oil in the balance

Oil equipment & services: Little clarity on the state of fraud probes

Big miners look cheap

Precious metals get their shine back

Business services braced for turbulence

Construction & materials: bumping along the bottom

Packaging: papering over the cracks

Is big pharma ready for the dominance of genetics?

Costs bite into UK healthcare

Brexit puts chemicals on the line

Regulatory change looms over utilities

Outsourcers still trying to turn it around