A flat index on the one hand, stock gains of up to 250% on the other.

What’s happening?!

Defensive stocks are the stars of  2016 so far. The UK 100 may be flat for 2016 but to leave it there would be doing the year-to-date performance of many of its constituent equities an injustice. The index has recently been enjoying an exciting 17% rally from the 3.5–year lows plumbed back in February. While some of the best performers of the year include the battered miners like Anglo American (AAL) and Glencore (GLEN), the gains were only to be had by those investors with the steely nerve to attempt to call the bottom, or those who then jumped on the handily provided momentum over the same period. It's reassuring to know, therefore, that opportunities aplenty have presented themselves to the more risk averse investor too.

It’s certainly not a case of ‘all the depressed leading the rally.’ Amid the current recovery there is not one bank within the top 30 performers year-to-date. The banks are still buckling under pressure from above. This brings us to an important observation that we have noted of late. A whopping 20% of UK 100 companies have posted fresh all-time highs this year. 30% have done so since last October. 11% have managed the feat in April alone. None are miners and none are banks. In fact, most are defensive stocks.

All-time highs, you say?!

The table below highlights a selection of the stocks mentioned earlier that have posted fresh all-time highs within the last two weeks. The first thing you’ll notice is that these are not names that you see in the news every day. They are not the most exciting, yet they’re doing the most exciting stuff on the UK 100 currently!

UK 100 stocks that made fresh all-time highs in April

As defensive stocks (also known as non- cyclicals) they might even be considered boring by some. But perhaps that’s their beauty. They are calmer, less volatile. They just get on with things - in this case trending higher. Which is what you are looking for, no? Stocks that rise? In that case, what’s not to like?! If you want the lowdown on the full 30, an Accendo trader can provide it on request. Will your current broker do the same?

How’s your portfolio doing?

If your portfolio has not benefitted from the UK 100 ’s 17% rally off its lows, then we’ve got some useful tips and pointers to help you find out a) why this might be and b) how to remedy the situation. There are 5 simple questions you can ask yourself:

1. What returns am I looking to generate?
2. What’s the maximum I could comfortably lose?
3. How frequently do I trade?
4. What’s my time horizon?
5. Do I have the right broker supporting me?

Think about whether your current broker even cares about any of this before reading what we think when we address each in turn below. Note there is really just one concept that unites all of them, and that’s risk management.

1. What returns am I looking to generate?

With greater risk comes greater reward. Where do you place yourself on the scale? Those who benefitted from the strong rebound in commodities took a risk in entering the market where they did. This paid off handsomely, in accordance with the risk taken. Other, more defensive stocks – think pharmaceuticals or tobacco – might not have yielded as much over the same time frame, yet their shares carry less risk because demand for their products is seen to remain fairly constant and is not necessarily seasonal. Interestingly, it’s not the miners that have made fresh all-time highs in Q1, it’s the defensives.

So deciding how risk-hungry you are is a good first step. The financial markets are seen by many as a gambling opportunity and that’s fine, but are you a gambler? This naturally leads to the next question:

2. What’s the maximum I could comfortably lose?

While other brokers will come out with flippant remarks like ‘the smart trader cares about profits and profits alone,’ Accendo markets cares about its clients. As your broker, it’s in our interest that you stay in the game but concentrating on ‘profits and profits alone’ would be doing you a disservice.

“Only risk money you can afford to lose. You’ll be less emotional and more rational”

The experienced weigh up the potential risk AND reward involved in every trade before deciding whether to proceed. While there is nothing wrong with placing lots of trades with the aim of banking lots of small profits (it is a perfectly valid strategy) risking too much and taking too many costly losses along the way is best avoided. See our empowering educational piece on Risk vs Reward for more details.

When managing an investment portfolio, you must accept that not every decision will be a winner. In doing so, you must set limits at which you’re happy to put your hands up and walk away. Taking a loss of, say, 5% is more palatable than sitting on a position that’s down by 50% or more. Closing a bad position may deliver an acute sting from which you can easily recover. Staying in one can result in chronic pain that could dog you for a long time. Investing in stocks is a lesson in humility – take it!

3. How frequently do I trade?

This question is pretty much the same as asking whether you are a short term trader or a long term investor. The latter may trade anything from a few times each quarter to only buying ever few years with the aim of playing the long-term trends and reinvesting dividend income. The former - in stark contrast - may be in and out of positions like a yo-yo, with trades lasting anything from a few minutes to a few weeks. The aim here is to profit from much smaller moves, the income element being unimportant.

“When seeking out ideas, look at both the long term and short term charts for the stock, commodity or index you’re interested in”

4. What’s my time horizon?

If you are looking to double your money it might be optimistic to think that this will be possible overnight. It can happen, but you have to be in a very particular type of stock where good news on a product (new drug approval, oil find, contract win) can significantly change a company’s prospects for the better which is often rapidly priced into its stock. Healthcare and Oil & Gas are good examples. In most cases, however, it will take time before a share price manages to deliver gains of 100%.

That said, there are helpful ways by which bigger returns can be delivered more quickly. The bigger the trade size the bigger the absolute returns possible. And the use of leveraged products such as CFDs and Spread Betting can magnify both trade size and thus returns in order to deliver those bigger profits over much shorter periods. In some cases just days rather than months, even years.

CFDs and Spread Betting tend to represent the products of choice for the short-term trader placing frequent orders, making the most of low cost trading and no stamp duty. This makes them much more cost effective than traditional and expensive share dealing and attractive to all investors over all durations.

5. Do I have the right broker supporting my endeavours?

We don’t believe that talking only about profits is giving a good service, but we do think that talking to you is a good thing! To that end, our aim is to provide the help you need by highlighting opportunities which may be profitable to you, the investor, and assist you in making investment decisions which can benefit from the use of leveraged instruments. At Accendo Markets we don’t tell you what to do. It’s your call whether you buy or sell. We think that’s really important.

Our approach focuses on 3 elements below;

• Education - not obligation
• Observations - not recommendation
• Assistance - not persistence

Our unique and award-winning service provides you with the help and tools you need to make appropriate trading decisions in the financial markets, both to grow and protect your capital. You can find out more about daily research and trade ideas received by Accendo clients below.

The Accendo Markets Research Offering

Does your current broker’s morning report tell you all you need to know about yesterday’s news? If so, how is it offering you anything more than the plethora of information already available on the internet? What about what’s happened overnight?

Sent out at 7.45am daily, Accendo Markets’ morning report offers readers a concise explanation as to why the UK 100 is called up or down each morning with a glance at its technical levels as well as those of Oil and Gold. We look at how the US bourses closed and what has been happening in Asia, with elaboration on drivers including macro-economic data, corporate results and central bank commentary as well as what to look out for during the trading day.

We’re proud that our morning editorial has become a hot commodity in the City, its content quoted daily by the journalists that are writing the news everyone else will be reading later in the day, if not the next. Our morning report tells you what’s driving the market at that moment. It’s fresh. The journalists don’t pay for it and neither do you, so why not give it a go? You’ve nothing to lose and perhaps a little more to gain.

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