The Difference Maker

Ultimately, investors who are interested in Mining sector ask themselves whether they should pick between Anglo American and Glencore or invest a part of the account into each stock to hedge their bets. Despite their similarities, the two companies present very different trading opportunities in 2018. Both stocks have reached a multi-year peak in 2018, but Glencore achieved this level (416.9p) at the end of January and has been on the downtrend ever since. Glencore shares are now down over 21% from 2018 peak. Anglo American shares, however, reached their 2018 peak of 1948p in early June and currently down just ~10% from those highs.

But past performance is only useful as a benchmark and investors are most eager to know the future potential, whether shares found a bottom and ready for a rebound back to recent highs. In this regard, the picture is different. Anglo American shares may be down just 10% from 2018 highs, but they have already recovered much of this year’s losses, advancing 12.8% from 2018 lows. Glencore shares may have suffered steeper losses in 2018 (21% fall from the high), but since finding a bottom in mid-July, Glencore shares bounced back just 7.7%, opening a bigger upside potential for Glencore to recover 2018 highs. (Source: AlphaTerminal, 8 August 2018)

Capital efficiency

People interested in the Mining sector often want to personally benefit from share price volatility by buying or selling company stock. But trading shares directly can sometimes tie up large amounts of capital. One way to take advantage of the opportunities presented by share price movement of UK 100 Miners, by using just 20% of the full value of the position, is to use products called CFDs.

If you want to invest £10,000 into Anglo American or Glencore shares, you can use leverage to maximise your capital’s full potential. If you decide to buy 578 shares in Anglo American at 1729.60p using CFDs, you only need to use around £2,000 (20% margin) instead of the full £10,000 value. The remaining £8,000 can sits on your trading account, either as extra safety buffer for this trade or for other trading opportunities that might catch your eye. On top of that, CFD investors don’t have to pay the 0.5% stamp duty, while receiving many of the same benefits as shareholders, including dividends.

By entering a £10,000 long position with CFDs, you are assuming that that the shares will go up. If Anglo American shares went all the way back to the 2018 high of 1948p (+12.6%), you would have made a profit of £1,266 (before commission and overnight financing costs), or a 63% return on your initial investment. However, if shares instead fell back to the late-July low of 1581p (-8.6%), this would represent a loss of around £856, or a 57% decline of initial outlays. Keep in mind that with CFDs, you can never lose more than the full value of your initial 20%/£2,000 deposit.

On the next two pages, we discuss share price performance of both stocks in more detail. Do you already have an opinion on where Anglo American or Glencore shares will go? Get in touch with one of our brokers to discuss your options.