While equity sector such as banks, tobacco and healthcare tend to attract the lion’s share of financial headlines, more niche areas such as leisure goods and forestry & paper have made the largest returns in the market over recent years, according to research by FE Trustnet.
Over the past five years the FTSE All Share has posted a 29.45 per cent total return, but this headline figure masks a wide dispersion in returns at a sector level.
As can be seen in the below graph, the best performing sector over five years – leisure goods – has made close to 200 per cent while the worst performer – industrial metals – saw an 85 per cent fall.
Performance of index and sub-sectors over 5yrs
Source: FE Analytics
Leisure goods sector is a small sector of companies involved in the manufacture and distribution of consumer electronics such as TVs, recreational equipment from cameras to yachts and toys and games.
A closer look at the sector, however, shows that its strong run is largely down to Photo-Me International, which operates automatic photobooths and manufactures photographic development and printing equipment.
It’s up 367.40 per cent over the past five years and is owned by funds such as Artemis UK Select, MFM Slater Recovery and Schroder UK Mid 250.
However, it’s been the standout performer of this concentrated sector. The second best performer over five years has Games Workshop but this stock has ‘only’ made 63.46 per cent.
On the other hand, the worst performer – Tavistock Investments – is down 97.58 per cent. Other members of the sector including Snacktime and Fitbug have also witnessed big falls over the same time frame.
Performance of stocks over 5yrs
Source: FE Analytics
The second best performing equity sector – forestry & paper – is another of the FTSE’s smallest and has made 159.80 per cent over five years. It covers the owners and operators of timber, sawmills and tree nurseries, along with producers and distributors of paper.
It is a relatively under-researched space and only has one significant member: global paper and packaging group Mondi, which was promoted to the FTSE 100 in 2013. Mondi has made a 159.78 per cent return over the past five years but the best performer has been James Cropper, which is up 418.22 per cent.
Eight funds have Mondi in their top 10, including Fidelity UK Opportunities, M&G UK Select and, unsurprisingly, Pictet Timber. James Cropper is not in the top positions of any Investment Association fund.
The table below shows the 10 highest returning FTSE All Share sectors over the past five years.
Source: FE Analytics
Consumer goods is the second largest sector in the FTSE All Share, with its 41 members accounting for 17.16 per cent of the index. Only financials is larger with its 283 companies making up the 24.07 per cent weighting.
The strong run in consumer goods businesses – the sector is up 99 per cent over five years – has been well covered and cited as one of the reasons for the outperformance of funds such as CF Lindsell Train UK Equity, Evenlode Income and Trojan Income.
Tobacco is another popular area with investors and has made 98.70 per cent over the time frame in question. This area of the market has handed investors some handsome long-term returns and is up 340.35 per cent on a 10-year view; only the personal goods sector has made more with a 411.38 per cent rise.
There are actually only two stocks in the sector: British American Tobacco and Imperial Brands. A number of top-performing UK funds hold both companies in the top 10s, including the likes of Invesco Perpetual High Income, Fidelity Moneybuilder Dividend and SVM UK Growth.
Performance of stocks vs index over 5yrs
Source: FE Analytics
Turning things on their heads and it’s clear that there have been some heavy losses in the FTSE’s sector. As mentioned, industrial metals companies have seen the biggest losses after falling by 85 per cent.
The sector is very dependent on the health of the global economy, much like the mining sector. Given the slowing growth in China, it has suffered over recent years and its best performing and best known member – Evraz – is still down 55.67 per cent.
In all six FTSE All Share sectors are in negative territory over five years.
As the table below shows, mining and basic materials have endured losses of more than 50 per cent. This is down to slowing growth in China, concerns around the global economy and plunging commodity prices.
Source: FE Analytics
Other troubled sectors include food & drug retailers, which has been hit hard by the negative sentiment surrounding supermarket majors, and banks, which were out of favour with investors following the global financial crisis.
That said, there has been somewhat of rebound in recent months as investors were attracted by the bargain basement prices in some of these sectors.
Industrial metals, mining and basic materials are the top three highest returning sectors over the past three months, with industrial metals rising by just over 80 per cent.
Leisure goods have been some of the worst performers, but it must be kept in mind that this is a very short time frame on which to look at equity investments.
