Investing Comment |
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Your Money > Investing Comment Articles > Miners, Oils, Banks - MOB rule?
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By Richard Hunter, Hargreaves Lansdown Stockbrokers
Some investors glaze over when the mining or oil sectors are mentioned, but there is a compelling reason for the fact that they are high profile sectors. As a general rule, when referring to "the market", analysts are as often as not thinking about the blue chip index in the form of the FTSE100. When taking this one stage further and looking to establish how the FTSE100 is actually broken down, there are a couple of observations which might surprise some investors. The top three sectors by market capitalisation - that is, the worth of the companies within the sector - are the oil, banking and mining sectors. Indeed, the percentage of their value is quite considerable compared to the overall worth of the FTSE100 - the oil sector represents 19%, the banks 16.1% and the mining sector 15.6%. Put another way, just adding these three sectors together accounts for almost 51% of the FTSE100 by value. This of course is one of the reasons why the latest investment themes have been such important ones for "the market" - oil prices reaching record highs and the inflationary pressure they exert around the globe. The fallout from the US sub-prime market and the ensuing credit crunch resulting in a seizure of the credit markets and requiring the likes of RBS and HBOS to come cap in hand to investors with rights issues totalling £16 billion. And the ongoing story of record commodity prices, largely driven by inexorable demand from rapidly developing economies such as China and India leading many analysts to the conclusion that the commodity story could yet have decades to run. Whilst these are without questions the hot topics of debate at the moment, the next two largest sectors - whilst a fair way behind - also represent a longer term investment theme. Fourth in the list is the pharmaceutical sector (6.5% of total market capitalisation) where of course the weakness of the pharmaceuticals over the last few years has been due to the twin drags of the lack of new blockbuster drugs, with little visible in the pipeline, along with the imminent patent expiries on a number of existing drugs, thus removing a core income stream. Nonetheless, the long term story of higher margin specialist drugs for an ever ageing global population remains intact, whilst it appears that Western medicine is starting to become more accepted in Asia, and China in particular. The fact that the larger companies have more recently been refining costs to improve margins should also bolster prospects going forward. Fifth in the list is a "one stock" sector in the form of mobile telecommunications, with the one stock in question being Vodafone (5.6% of total market capitalisation). It is sometimes possible to forget the size of the company which, globally, has in excess of 250 million customers and which is very much amongst the largest world players in its field. In terms of the biggest five individual stocks within the FTSE100 and their relative size compared to the market, there are again few surprises - the five in question are Royal Dutch Shell (8.2%), BP (7.3%), HSBC (6.9%), Vodafone (5.6% as mentioned above) and Rio Tinto (4.2%) - together these five stocks are responsible for 32%, or nearly a third, of the FTSE by value. In some ways, this does show the limitations of a tracker fund - after all, in buying a FTSE100 tracker the investor is effectively putting half of the investment into a view on the oils, banks and miners - but by the same token it does at a stroke give exposure to a wide range of sectors. As long as the investor is aware of the real heavyweights within the leading index, so the ever present discussions around oils, banks and commodities begin to fall into place. Useful links: |
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