The Daily Telegraph - Your Money - - YOUR MONEY - Richard Dyson

If there is one trend that will dom­i­nate in­vest­ing in 2017, it is this

Re­mem­ber the RBS econ­o­mist who this time last year warned in­vestors to “be afraid” and “sell mostly ev­ery­thing”? In a note dated Jan­uary 8, he and his team pre­dicted that 2016 would be a re­run of 2008 (the year of the bank­ing cri­sis) and added the chill­ing and much-re­peated phrase: “In a crowded room, exit doors are small.”

In fact the year 2016 was one to cel­e­brate, at least from many Bri­tish in­vestors’ point of view.

If you owned any fund or port­fo­lio of shares that ap­prox­i­mately re­sem­bled the UK’s lead­ing FTSE 100 index of blue chips, you would have made cap­i­tal gains of around 14pc, or more with div­i­dends thrown in.

That’s ap­proach­ing dou­ble the an­nual av­er­age to­tal re­turn earned by the Bri­tish stock mar­ket since re­li­able record-keep­ing be­gan in 1899.

But a trend emerged dur­ing 2016 which is likely to gather mo­men­tum and be­come even more pro­nounced dur­ing 2017. This is the highly fo­cused na­ture of the gains within the wider mar­ket.

As the graph on Page 3 makes dra­mat­i­cally clear, a hand­ful of stocks in just two parts of the mar­ket – oils and min­ers – were re­spon­si­ble for al­most all of the FTSE’s 2016 gains. The ris­ing oil price was one rea­son: the as­ton­ish­ing surge in the shares of BP (up by around 50pc) and Shell (up by 67pc) ac­counted for about 40pc of the FTSE’s gain.

The post-Brexit fall in ster­ling was the other fac­tor. Gi­ant firms with dol­lar earn­ings have be­come far more highly val­ued in ster­ling terms. Ex­clud­ing this fac­tor, share price growth among FTSE con­stituents was flat­tish.

There have been other pe­ri­ods in which the FTSE index was skewed by dra­matic share prices move­ments in iso­lated sec­tors. The tech­nol­ogy bub­ble that burst in 2000 was one ex­am­ple: at one stage dur­ing that pe­riod Voda­fone ac­counted for 14pc of the FTSE. To­day the big­gest com­pany, HSBC, ac­counts for about 8pc. The bank­ing cri­sis was an­other ex­am­ple.

In such cases the en­tire index is dragged up or down by the dra­matic out­per­for­mance or un­der­per­for­mance of a mi­nor­ity of stocks.

In 2016 this played in in­vestors’ favour. In 2017 it may not.

Firstly, the head­winds in­vestors face now are not con­fined to spe­cific sec­tors.

Fam­i­lies are rack­ing up non­mort­gage debts at the fastest rate for more than a decade, ac­cord­ing to Bank of Eng­land fig­ures pub­lished on Wed­nes­day. Cou­ple this with in­fla­tion and, per­haps, jit­ters caused by a fal­ter­ing hous­ing mar­ket, and con­sumers will slow their spend­ing. This is bad for many sec­tors.

There is also the ques­tion of div­i­dends and com­pany in­vest­ment.

Oil stocks BP and Shell ac­counted for around 40pc of the FTSE 100’s gain in the year 2016

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