The UK remains a stockpicker’s market as banks, oil and mining pull company revenues down to £1.07trn for the last financial year, with profits at the lowest since at least 2007, says a report by The Share Centre.
Across sectors revenues fell £191bn or 15.1 per cent, but the Profit Watch UK report, based on annual results released between January and March, says the dominance of banks, oil and mining masked encouraging signs elsewhere.
Engineering and chemicals businesses also faced a difficult financial year.
However, retailers outside the supermarket sector benefited from better consumer spending, while media and support services also traded strongly.
Every company among housebuilders increased their margins.
Helal Miah, investment research analyst at The Share Centre says the figures highlight unequal weighting on the UK index, with mining, oil and banking accounting for two fifths of all top-350 revenue.
The sectors were hit by global trends such as falling commodity prices and negative interest rates, although the report said the worst could be over for miners with prices showing signs of bottoming out.
However, “the worst is over for most”, according to the report.
“For passive investors, this hammers home the fact that tracker funds can leave them with a dangerously skewed portfolio,” Miah says.
“This re-emphasises our view that 2016/2017 is a stock pickers market and that active fund investing is an easier way to diversify away from risks.”
The report suggests investors consider funds with a broader sector or geographic exposure, or pick stocks providing them with a more balanced portfolio.
It also warned more dividend cuts could be on their way, particularly in troubled sectors.
Mid-caps outperformed when it came to pre-tax profits, increasing 3.8 per cent, while top 100 companies saw them drop 47.9 per cent.
Excluding poorly performing banks, oil and mining companies, pre-tax profits rose 14.9 per cent overall, although this was significantly boosted by GlaxoSmithKline’s sale of its oncology business.
Overall, 20 sectors saw pre-tax profits fall, while 17 saw them rise.
When it came to operating profits sectors with fixed costs and rising sales performed well, such as the travel and leisure industries.
The construction industry also faired well due to higher volumes and prices.
This month, portfolio manager for the JPM UK Equity Core fund James Illsley said outperformance by active UK equity managers could come to an end if commodity markets cause indexes to rebound as they did in Q1.
UK Profit Watch figures are based on the top 350 companies’ full year results released in the period between January and March.