It has been a tumultuous three months in markets, as investors have battled rising inflation and interest rates while in February geopolitics took centre stage, with Russia invading Ukraine.
Against this backdrop the UK market has performed well, despite the challenges faced. Indeed, over the past three months the FTSE All Share has risen 0.6% while the MSCI World index has dropped 1.2%.
There are a number of reasons for this. The US market, which dominates the global index and is in turn largely driven by technology stocks, has struggled as inflation and interest rates have eaten into their valuations.
Conversely, the UK is among the most “value-driven” markets in the world, led by large banks (HBSC, Barclays etc.), miners (Glencore, Rio Tinto etc.) and oil majors (Shell and BP).
These companies have held up well in the turmoil and have caught the eye of UK fund managers who have been quick to snap up shares. Below Trustnet looks at three of the most-bought stocks by UK funds over the past three months. Previously we have covered the most-bought global stocks.
Shell
High inflation has had a particular impact on the price of oil over the past year and Shell’s share price has risen accordingly, up 44.9% over the past 12 months.
The oil and gas company has benefited from higher commodity prices, reporting a total income of $6.4bn (£4.9bn) in 2021 – 16x higher than the year before as the price of Brent crude oil hit $107 a barrel.
It was the sixth most bought stock by UK fund managers over the past three months. Online data site Tip Ranks, which collates analyst recommendations, suggested the share price could rise a further 21% over the next year, if the average target price were achieved.
Conflict in Ukraine has accelerated the firm’s shares as the UK government sets out to cut off all oil imports from Russian, which currently account for 8% of total oil demand.
This has put pressure on the country’s largest oil producer to supplement these lost imports, as well as some of the other 4.5 million barrels delivered in Europe daily from Russia.
Share price return of Shell over 1yr
Source: Google Finance
Joe Walters, senior fund manager at Royal London Asset Management said that Shell is “well positioned to benefit from countries attempting to gain energy independence, which explains why the shares have performed well”.
Likewise, Richard Penny, manager of the TM CRUX UK Special Situations fund, said: “Most active managers have been underweight oil and gas due to either a focus on growth or increasing [environmental, social and governance] ESG issues.”
However, he was bullish on other franchises run by Shell (notably LNG, Deepwater oil drilling and forecourt retail businesses) and increased his exposure by 1.7 percentage points to 4.6% on 25 March.
Jet2
Like many airline companies, performance slowed for Jet2 during the pandemic as international travel restrictions drastically reduced the number of commercial flights and fewer people holidayed abroad.
In 2021, revenue was down 89% from the previous year to £395.4m and the share price has lowered by 8.6% over the past year.
However, Eustace Santa Barbara, co-manager of the IFSL Marlborough Special Situations fund, said the firm was not as affected by problems that dragged down many competitors such as EasyJet, where shares have dropped 33.8% in the past year.
Share prices of companies over 1yr
Source: Google Finance
He has held stocks in the company since May 2020 and increased his position in February last year.
Santa Barbara said: “We believe that Jet2 is not just a survivor but a thriver coming out the pandemic. It has net cash on the balance sheet and we like its business model: owning the majority of its aircraft fleet, extremely user-friendly online booking and a strong relationship with hotels.”
Eric Burns, chief analyst at Sanford DeLand, also praised Jet2 for “exemplary customer service” throughout the pandemic when processing cancellations and refunds.
He also suggested that Jet2’s robust performance throughout the pandemic was due to “its dominance in secondary and tertiary airports” – instead of competing in the UK’s crowded airports, it served a niche market for private flights that were less impacted by covid than holiday airlines.
The stock was first added to the Buffettology fund in April 2011 as one of its first purchases and the fund increased its weighting 2020.
The fund sold 10% of its shares in the company in January 2022 when the decline in Omicron cases led to higher valuations but Burns said that two years of pent up demand means shares still are undervalued.
It was the eighth most bought stock in past three months and analysts anticipate a 38.1% increase in its share price as air travel returns to pre-pandemic levels, according to Tip Ranks.
AstraZeneca
The reopening of global economies would not have been possible without pharmaceutical companies such as AstraZeneca, which produced huge quantities of vaccines in the fight against Covid.
Shares have reflected this, up 38.5% over the past year, as governments ordered huge batches of the drug, but analysts predict 1.5% decline over the next year.
Some may be concerned that performance could dwindle now that the vaccine roll-out is mostly complete, but Callum Abbot, co-manager of the JPM UK Sustainable Equity fund said that new drugs developed by the company will be a strong source of income in future.
He said: “The company has recently reported excellent phase III data for several pipeline drugs, indicating that they should be hugely successful products and generate significant revenues for the company, as well as change the lives of patients and their families.”
The fund has held a position in AstraZeneca since its inception in June 2021 and Abbott said that its ambitious net-zero targets also gives it a positive outlook from a sustainable perspective.