Woodford, Train and Smith Hit by FTSE Failures

We round up the five worst-performing FTSE 100 stocks in the first three months of 2018 and the fund managers that own them

David Brenchley 18 April, 2018 | 7:37AM
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Imperial Brands cigarettes, FTSE 100 stocks, share prices, Sage, Micro Focus, Barratt Developments

Over the past couple of years, the UK stock market has seen many of its constituents running into trouble. While many of the problems seem to have been contained in the retail sector – with consumers choosing to forego discretionary spending on larger, luxury items – other areas have not been immune.

While volatility was low in 2017, the market was still not slow to punish firms that warned on profits or the outlook, or generally disappointed relative to expectations. As a result, we’ve seen plenty of heavy falls.

That’s continued into 2018, and the past week has seen Sage (SGE) punished for sales growth slowing more than expected and WPP (WPP) rocked by the resignation of longstanding boss and founder Sir Martin Sorrell.

The FTSE 100 ended the first quarter of 2018 down more than 8%. While it has recovered ground slightly, the next fortnight is set to be a big period for the index, as over a quarter of its constituents will release figures or host AGMs, according to AJ Bell.

“Short-term share price movements are driven by sentiment but long-term valuations are driven by profits and, above all, cash flow,” says investment director Russ Mould.

However, while investors will be hoping for earnings boosts, aggregate profit estimates for the FTSE 100 in 2018 remain largely unchanged in Q1. Still, Mould hopes that gives scope for upside.

Below, we take a look at the five worst-performing UK blue chips on a total return basis in Q1 and find out which fund managers have taken the biggest hits on each.

Micro Focus (MCRO)

Software automation provider Micro Focus has been by far the worst performing stock in the FTSE 100 in the year to March 31, losing investors a huge 60% in the three months.

Moving into 2018, the share priced had more than quadrupled and reached a peak of over £27 in November. But a series of setbacks dramatically ended its winning run. First, interim results disappointed investors, causing shares to slip 17%.

Then, last month, it lost boss Chris Hsu and admitted year-on-year revenues had declined more than expected since early January. It saw almost half its market value wiped off in one day.

That didn’t dampen bosses’ enthusiasm for the story and some snapped up shares for around a tenner in the following days. Kevin Loosemore, executive chairman, parted with over £200,000. Institutional investor Dodge & Cox, meanwhile, topped up its holding, suggesting confidence.

BlackRock and Old Mutual are big shareholders in Micro Focus, with the stock held in the latter’s UK Specialist Equity and UK Dynamic Equity Funds.

Elsewhere, SLI UK Equity Income Unconstrained also has a significant holding, as do Fidelity UK Select and Rathbone Income. The L&G UK Alpha Trust has 5% of its portfolio exposed to the firm.

Imperial Brands (IMB)

Neil Woodford staple Imperial Brands has been the second-worst performer, though admittedly nowhere near Micro Focus. It’s lost investors more than a fifth of their cash so far this year.

The maker of Rizla and Gauloises cigarette products hasn’t seen any significant news events to drive sudden declines in its share price but has seen it steadily decline since the start of 2018. That culminated in a four-year low of £23 in late March.

In fact, at the time of that nadir it had almost halved since August 2016. Again, though, directors have been buying shares since.

As mentioned, Woodford has been the hardest hit, with his Silver Rated LF Woodford Equity Income and LF Woodford Income Focus having more than 6% of their portfolios in the company. Meanwhile, it accounts for 8.4% of his St James’s Place UK High Income fund.

It’s an income favourite, so a number of UK equity income offerings will have exposure to it. These include Threadneedle UK Equity Alpha Income, Ardevora UK Income and M&G Dividend.

Sage

Another firm beset with problems recently has been Sage. We’ve already mentioned its most recent faux pas, but back in January the share price slipped 6% after missing its first-quarter sales target. Taken altogether, the stock is now trading dangerously close to the £6 level, or a one-year low.

The stock is widely seen as a fairly defensive business with a healthy and growing dividend. For this reason, Ian Forrest, investment research analyst at The Share Centre, said recent news flow was “disappointing”.

Sage also caught a high-profile UK manager cold. Lindsell Train Ltd is listed as the third largest shareholder. Nick Train’s Finsbury Growth & Income (FGT) and LF Lindsell Train UK Equity offerings were hit due to both having over 6% of their portfolios invested there.

The two institutions above Lindsell Train are Standard Life Aberdeen and BlackRock, with Fundsmith following not far behind. It accounts for 2.735% of Fundsmith Equity’s portfolio.

The TB Evenlode Income fund has 4.68%, while L&G Growth, HL Select Growth and FP CRUX UK have around 4% of their portfolios exposed to the firm.

Barratt Developments (BDEV)

Housebuilders were amongst the worst hit in the immediate aftermath of the Brexit vote in June 2016, with shares in some dropping to multi-year lows. But they recovered pretty quickly, and most had reached all-time highs by late last year.

But as soon as Barratt managed to do just that, its share price immediately dropped by 5% the next day. Shares eventually reached a one-year low last month, and have seen a total loss of 18.1% in the year to March 31.

However, broker Liberum recently upgraded its recommendation for clients from ‘sell' to 'hold’. And chairman John Allen has spent almost £100,000 on shares since late February at a similar level to today’s 559p price.

It’s another Woodford favourite, with Woodford Investment Management listed as the second largest shareholder. BlackRock comes in at number one, with Standard Life Aberdeen at number two.

Again, Woodford’s two open-ended vehicles top the list of fund owners, with Liontrust Macro Equity Income also high up. Again, it’s on yield searchers’ list due to its high dividend yield. Old Mutual UK Mid Cap, JPM UK Dynamic, Man GLG UK Income and L&G Ethical Trust also screen high up.

Randgold Resources (RRS)

Miners are back in favour with many investors, after they either returned to the dividend list or announced hikes to their payouts in recent months.

One of these is Randgold, which said it would double its dividend to $2 back in February after full-year results showed a 14% rise in profits. Despite that, shares dropped 14% in the following few days. And it’s continued to slip since. In all, it’s down 17.9% to March 31.

But The Share Centre's Forrest likes the stock still. The gold price is gaining momentum and geopolitical tension and other factors could drive it higher still. As a result, “this stock could be a golden growth opportunity”, he says.

Again, BlackRock is listed as the largest shareholder, ahead of Capital Group Companies and FMR LLC.

The Odey Opus hedge fund has almost 9% of its portfolio invested in Randgold – a rather large bet on the outlook for the firm improving. Elsewhere, funds focused on resource-related companies like Investec Global Gold, HC Charteris Gold and Precious Metals and BlackRock World Mining also have significant exposure.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk