Stock Indices | Sectors | FTSE

As 2009 drew to a close, the FTSE 100 celebrated the holiday season with a modest burst of growth, adding more than 3% in the last three days of the trading year and rising to 5372.

Despite a stumble in January, the UK's blue-chip index was up to 5728 by the beginning of April, and went on to add a further 100 points before eurozone debt issues began to provoke fears of a major obstacle to economic recovery. Global financial markets doubled back on their previous growth, with the FTSE sliding back below 5000 by the end of May. Now, having lost almost 2% this week, the FTSE closed at 5028.15 on Tuesday 8 June.

Clearly 2010 has been something of a wild ride so far, but which sectors in the FTSE 350 – amalgamating both the FTSE 100 and the FTSE 250 – have been riding the crest of the wave, and which have been left tumbling in its wake?

Strong performers

Three sectors have taken the FTSE 350's podium places in the first six months of the year, but the gold-medal winner by a clear length has so far been the Industrial & Engineering sector, with a gain of 19%.

The sector is comprised of just eight companies, but three key factors have combined to overcome last year's annus miserabilis: opportunity, upgrades and cost-cutting.

Industry and Engineering bore much of the economic worry-weight in 2009, but an extended bearish period has since given way to perceptions of value which bargain-hunting investors were quick to seize upon. The sector's companies also took a number of cost-cutting measures, putting them in better shape to see out the challenges of an uncertain economic climate. This strict fitness regime no doubt helped the sector’s largest company by weight – engineering group IMI – which received a series of broker upgrades throughout the period. IMI, a constituent of the FTSE 250, specialises in producing innovative engineering solutions to niche markets.

The other sectors putting in medal-winning performances are Travel & Leisure, up 12%, and Technology, up 11%. In view of the myriad problems airlines have been facing this year – not least the volcanic ash cloud which caused weeks of disruption – it might seem a surprise that Travel & Leisure has performed so strongly. However, during times of economic uncertainty investors typically gravitate to those stocks showing a reassuring stability, and this sector's largest firm by market capitalisation is the defensive catering contractor Compass, which has seen its share price rise to dizzy heights not visited since 2001.

Lagging sectors

At the opposite end of the FTSE 350, however, three sectors have fared rather less less in the first six months of 2010 – Insurance, Oil & Gas and Utilities. Blame for the Insurance sector's poor performance can for the most part be laid at the feet of Prudential, which makes up around a quarter of the sector's weighting. Over recent weeks the Pru has been dogged by its controversial and ultimately unsuccessful attempt to buy AIA's Asian assets – with shareholders less than impressed by the £450 million spent funding the deal.

The Oil & Gas sector has been burdened with a similarly weighty ball and chain, as BP’s catastrophic oil spill has seen the oil giant shed over 40% of its value. Given that BP accounts for an even larger slice of Oil & Gas – around 34% by weighting – than Prudential does for its sector, the Gulf of Mexico spill has needless to say been a heavy influence on the sector's overall loss of 8% in the first half of 2010.

The Utilities sector also lost 8% in the period to June, and just as with its parters-in-misfortune it is the suffering of one particular company which is having a significant impact. After its recently launched rights issue, National Grid has seen its share price take a severe dip – at the beginning of the year the price was above 600p, but it now stands below 500p, at levels not seen since last summer.

Knowing your sectors

It is clear from the above that some sectors are heavily influenced by one or two giants whose market capitalisation makes up a large proportion of the sector as a whole – as previously noted this applies particularly to the Oil & Gas sector, where beleaguered BP comprises a third of the pie.

As such, it is crucial to know what is going on in a particular sector. Four weeks ago, for example, you might have felt that rising oil prices and increased consumption were likely to benefit the Oil & Gas sector, but you would probably also have noted that if BP’s crisis was a prolonged one the company's share price was set to tumble. As such you may have chosen to go long on the entire sector, while simultaneously shorting the individual share that looked set to fall.

Take a position

Whether you believe UK-listed companies are due to make gains or look set to be hit by unfavourable economic conditions, it is easy to go long or short on a range of indices, sectors or shares with IG Markets.

Choose from a full range of daily and future trades on our extensive range of global indices, which include all the major UK, European, US and Asian markets.

You can take a more specific view by using our 35 sector trades based on the FTSE 350 – including Industrial Engineering, Gas, Water & Utilities and Oil & Gas Producers, plus the ever-topical Banking and Mining sectors.

You can also learn more about CFD trading on individual shares, or simply apply online to start trading today.

Updated: 09/06/10

Source: [1] The Daily Telegraph (1 June 2010)

The above comments do not constitute investment advice and IG Markets accepts no responsibility for any use that may be made of them.