Interactive Investor

The FTSE 100 shares that made you rich in 2016

19th December 2016 11:18

Lee Wild from interactive investor

Rarely has a group of blue-chip stocks had a year like this. That's because it's rare that a major turn in the cycle coincides neatly with a new calendar year. In 2016, it did for the miners, and brave investors who backed the bombed-out sector will be much richer for it.

London's mining heavyweights had suffered a miserable five years, failing to cope with a toxic combination of oversupply and a decline in demand, particularly from China.

It was a "race to the bottom" in 2015, according to analysts at consultancy PWC. It marked the first ever collective net loss for the world's top 40 mining companies, their lowest return on capital employed "and the tag team effect of prevailing debt levels plus impairments, sending leverage to new heights".

Selling assets and mothballing projects has managed to restore some kind of orderThe top 40 lost 37% of their market capitalisation last year, with some experts predicting that heavily indebted miner and commodities trader Glencore might actually be worth nothing at all.

Incredibly, selling assets and mothballing projects has taken enough capacity out of the system to restore some kind of order. In fact, metal prices have risen sharply recently, but, as financial markets price in anticipated events well in advance, share prices took off long ago.

Top prize this year goes to Anglo American. Worth over £34 a share early 2011, they could be had for as little as 215p in January this year. Roll on less than 12 months and they're over £11, a gain of 271%. They have been as high as £12.83.

Even if you didn't believe the contrarians and back the sector with your own cash, there's a good chance your fund manager did. That's absolutely certain if you owned a FTSE 100 tracker.

Anglo put much of the business up for sale and had flogged large parts of its portfolio last year. However, with commodity prices in better shape, Anglo said a month ago it was prepared to hang on to assets previously deemed "non-core". Things must be looking up.

Hats off to Justin Urquhart Stewart, who tipped Anglo American for a 2016 comebackPicking the bottom of a particular market is an almost impossible task. If we do, an honest trader would put it down to luck. The most one can hope for realistically is there or thereabouts.

But it's hats off to Justin Urquhart Stewart, stockbroking legend and co-founder of Seven Investment Management. Filming for Interactive Investor this time last year, Justin named Anglo American as his tip for 2016. Bingo!

You can watch the clip again here. Justin's tip for 2017 will be available shortly.

Hot on its heels was Glencore. Down from over £5 in 2011, the shares swapped hands for less than 67p. But it's had huge success slashing debt and has just signed a smart deal with Qatar Investment Authority to buy a stake in Russia's Rosneft. It could generate hundreds of millions of pounds profit from oil trading rights.

Glencore shares currently trade up 197% in 2016 at 269p. Analysts at UBS said recently they could be worth 330p.

Despite dividend cuts and headwinds ripping through the mining sector, BHP Billiton and Rio Tinto were among the best-performing blue chips in 2016. Fresnillo was close behind in sixth place, although investors bailed out as the gold price deteriorated from within sight of $1,400 an ounce to nearer $1,100.

If the clock had stopped in July, when traders fretted about Brexit and Trump, Fresnillo would have been in the top three. Analysts at Numis Securities point out that while gold and related equities underperformed into both the Federal Reserve's previous interest rate hike and beginning of the taper, they rallied over 10% the following quarter. We'll see if history repeats.

Splitting the miners was Morrisons, the supermarket battered by competition from German discounters Aldi and Lidl. But after bottoming out at a multi-year low in December 2015, investors spotted a bargain. And, in November this year, bosses repaid the faith with a fourth consecutive quarter of like-for-like sales growth.

After two years in decline, airport scanners to oil accessories firm Smiths Group clawed back all its lost ground in half the time. Yes, the oil slump hurt its John Crane mechanical seals division, but heavy cost-cutting at the detection unit, which makes explosive detection systems, and at electronic components business Interconnect, meant half-year results in March beat expectations.

It was pretty much the theme all year, with improvements elsewhere offset by weakness at John Crane. However, the weak pound has been a benefit to Smiths, and David Larkam, an analyst at Numis Securities, still thinks they're worth £16.

Ashtead is a surprise top 10 share, up on hopes of Trump's infrastructure spendingElsewhere, the recovery in oil prices back above $50 from as low as $25 a barrel has been a big help to Shell. It was also the year it completed the acquisition of BG Group, the benefits of which are still feeding through.

Crucially, it's maintained the dividend and has begun selling $30 billion of assets, which should further underpin the reliable payout.

Ashtead is probably the most surprising member of the top 10 in 2016. The infrastructure specialist had already begun to recover from an early-year slump, but the election of Donald Trump as US president was like a dose of steroids for the UK firm.

That's because Ashtead has a huge American division - Sunbelt - which serves the US construction and industrial equipment rental sector. It could be a clear beneficiary if Trump fulfils his promise to spend as much as $1 trillion (£789 billion) on improving American roads, bridges, airports and other infrastructure.

Finally, private equity firm 3i props up the top 10, following a 40% gain in 2016. It's also been a steady performer since the February crash, and last month reported net asset value (NAV) of 551p, in line with expectations and up 19% since March.

Despite 3i's significant outperformance this year, analysts at Barclays argue that there could be more to go. "The multiple is not stretched at 1.19 times historical NAV or 1.13 times projected March 2017 NAV," it says, believing the shares could be worth as much as 750p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.