Mining stocks rose from the bottom to the top in 2016; becoming the biggest FTSE 100 winners of 2016, reversing their losing streak of 2015. Falling commodity prices dragged down mining stocks in 2015, and it is the oil price recovery which has contributed to this year’s share price rally.
Mining companies top the list of the FTSE 100 stocks with the biggest gains so far in 2016. Data from Morningstar Direct shows Anglo American (AAL) shares jumped 159% year to date, while Fresnillo (FRES) gained 159% and Glencore (GLEN) is up 104%. This is a huge contrast to the performance of these mining stocks in 2015: Anglo American fell 70% in 2015 and Glencore lost 66% – the biggest FTSE 100 losers of 2015.
Energy stocks have also appeared on the biggest risers list; Royal Dutch Shell (RDSB) is up 43.5% year to date, while BP (BP.) has gained 31.7%, according to Morningstar Direct.
As the US central bank the Federal Reserve continues to put off another interest rate rise thanks in part to Brexit uncertainty, the US dollar has remained soft for 2016. When the US dollar weakens, commodity prices generally move higher. This has resulted in rising commodity prices, boosting share prices of mining companies.
However, Morningstar analysts expect weaker prices and demand across commodities in mining companies over the medium term thanks to weaker Chinese GDP growth. As a result, analysts believe Anglo American and Glencore shares are trading higher than their fair value estimates.
“We see considerable downside as cash flows from its iron ore, coal, and copper businesses continue to decline with commodity prices,” David Wang, Morningstar equity analyst said, adding that as with all mining companies, a severe and lengthy downturn in commodity prices represents the greatest risk to Anglo American and Glencore.
Surprising Post Brexit Rally in FTSE 100
It was an interesting start for UK stocks in 2016, with the FTSE 100 entering a bear market in January. The tumbling oil price was the main driver of the falling market, as oil and mining stocks make up a significant part of the blue chip index.
While many of the FTSE 100 companies continue to be under pressure due to slower global economic growth, the surprise outcome from the June 23 EU referendum pushed the blue-chip index further down. The FTSE 100 opened 8% down on the day after the vote.
But the pain was short-lived. A week later, the FTSE 100 had regained its post-Brexit losses and the index is now up 9% year to date.
Randgold Resources (RRS), the gold miner in FTSE 100 has seen its share price climb 115% so far in 2016. As gold continues to be safe haven amid Brexit fears, it has pushed up the share price of gold miners.
Meanwhile, thanks to the agreement on a £24.3 billion cash takeover deal by Japan’s SoftBank Group on July 18, tech company ARM Holdings (ARM) was also among the list of the FTSE 100 biggest stocks gains so far in 2016. The shares soared 62% year to date.
Funds Benefit from Mining and Energy Stocks Gain
Funds with high exposure to mining companies also benefited from the gains in miners’ share prices. BlackRock Gold and General, the Gold Rated fund with 95% exposure to metals and mining sector, has gained 118% year to date, according to Morningstar Direct. This fund remains a strong offering for investors seeking mainstream gold and precious-metals equity exposure in a risk-controlled manner, Morningstar analyst Fatima Khizou said.
BlackRock World Mining Trust (BRWM), the Silver Rated closed-end fund which is highly exposed to miners, has also climbed, up 59% year to date. Khizou continues to believe that BlackRock’s team is one of the best resourced in the sector, underpinned by its experience and knowledge.
The Silver Rated First State Global Resources fund has 65% exposure to miners and it is up 53% year to date. Khizou said the fund’s long-term track record remains solid and is significantly ahead of the Sector Equity Natural Resources Morningstar Category average.
The Bronze Rated JP Morgan Natural Resources fund, which has 62% exposure to miners, delivers a 55% return year to date. The fund manager Neil Gregson has spent most of his career in the resources sector, and his accumulated knowledge and expertise are particularly relevant for this fund, Khizou said. She added that the fund’s absolute and relative returns were strong so far in 2016, helped by its underweighting to energy and copper picks.
Airlines, Banks, Homebuilders the Biggest Losers
Among the biggest losers for 2016 were stocks in airlines, banks and homebuilders sector, as doubts around London’s future as a global financial hub grow following a Brexit vote.
Airlines stocks including easyJet (EZJ) and International Consolidated Airline Group (IAG) topped the biggest fallers list in the blue-chip index. EasyJet issued a profits warning blaming Brexit after the EU referendum outcome and seen shares fall 18% on the announcement. The stock falls 37.8% year to date, leading the biggest losers of 2016. Meanwhile, International Consolidated Airline Group is down 38.1% year to date.
Financial stocks also suffered in the wake of the Brexit vote. Royal Bank of Scotland Group (RBS) losses 37.3% while Barclays (BARC) is down 29.1% year to date. Lloyds Banking Group (LLOY) also posts a loss of 22.7% year to date.
Insurance company Aviva (AV.) has seen shares drop by 24% year to date while Legal & General Group (LGEN) losses 23%. Another financial services company Standard Life (SL.) was also among the top losers of 2016, losing 22.9% year to date.
Homebuilders Barratt Developments (BDEV) came third on the biggest losers, falling 33.4% of its share price year to date. Taylor Wimpey (TW.) loses 22.6% year to date.
