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The Accumulator: oil helps put FTSE back in black

The FTSE 100 has overcome a challenging first quarter, with a 12% rally in the past seven weeks leaving it up just 2% for the year to date.

 
The Accumulator: oil helps put FTSE back in black

The FTSE 100 last week moved back into positive territory for the year to date, overcoming a challenging first quarter.

A combination of buoyant oil stocks after US president Trump reimposed sanctions on Iran and sent Brent crude oil rising $2.45 to $77.30 a barrel; a weak pound boosting the overseas earnings of blue chip companies; and continued bid activity among UK companies saw the FTSE 100 gain 157 points or 2% in the short four-day week, to close at 7,724 on Friday.

The blue-chip index actually pushed past the 7,687 level at which it started the year at the end of Thursday. It remains below the 7,778 peak of 12 January after which markets slid for the best part of six weeks over fears that rising inflation would force a rapid rise in US interest rates from the Federal Reserve, destabilising asset prices. However, these fears appear to have receded with the FTSE rallying 12% since its reaching its low for the year of 6,888 on 26 March.

Our exclusive Accumulator data table shows that with the dividends paid by UK’s top 100 listed companies included, the FTSE has delivered a total return of 2% so far this year, 8.9% over 12 months and 40.7% over five years.

Oil, normally priced in dollars, rose by 6.1% over the week to Thursday’s close when measured in sterling, according to our data, and on the same basis is up 17.7% so far this year.

Richard Robinson, manager of the Ashburton Global Energy fund, said the fundamentals supporting the oil price were good. He pointed out that the rate of decline in the amount of oil in storage over the last 12 months has been unprecedented, despite growth in supply from the US onshore market.

‘This supply growth has been eclipsed by a combination of strong demand growth, which was far above the IEA forecast at the beginning of the year, and supply being driven lower in a number of countries, most notably Venezuela.

‘Next year, we will also see the start of a sequence of years where the number of projects delivering first-oil declines significantly, thanks to the precipitous drop in project spending between 2014 and 2017,’ he explained.

The upwards move in the oil price spelt good news for Russian equities. The MSCI Russia rose by 5.6% over the week in sterling terms and follows a difficult period for the country after the US introduced tough sanctions in April.

The Accumulator table shows that ‘mixed asset’ funds, which invest in a mix of shares, bonds and other asset classes remain slightly in the red this year. ‘Balanced’ funds that can invest 20-60% in equities, or shares, are -0.6% down this year on average. Over five years their average total return of 29.1% lags the FTSE 100’s 40.7%, but has given investors a smoother ride with a maximum ‘drawdown’ or fall of 9.5% compared to 17.8% for the UK equity benchmark.

 

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