FTSE 100’s best and worst shares of 2022

It’s been a year of sharp contrasts, even for the UK blue-chip index, one of the world’s best-performing stock markets of 2022. Here are the winners and losers.

The complaint that the FTSE 100 index is too full of old economy stocks was forgotten in 2022 as heavyweights BAE Systems (LSE:BA.), BP (LSE:BP.) and AstraZeneca (LSE:AZN) came to the rescue of investors.

The outperformance of London’s top flight in a tumultuous year for global markets reflected its exposure to the commodity sector and oil in particular, as well as a large number of defensive shares with pricing power to offset inflation.

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Whereas the FTSE 100 index approached the end of the year close to where it started, Wall Street’s S&P 500 was down by 16% and the tech-focused Nasdaq off 29%.

The strength of the US dollar added support to an index dominated by overseas earnings, while an average dividend yield of 3.7% has been an additional attraction.

And at a time of heightened global uncertainty, there’s been reassurance from mature and established companies that have withstood previous environments as tough as this one.

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For BAE Systems, however, the conditions have rarely been more favourable as it racked up £28 billion of orders in the year, including from governments looking to respond to the elevated threat environment.

Most major defence programmes tend to be over a long cycle, meaning the contracts secured now will be traded for many years and give the company long-term growth visibility.

BAE’s shares, which stood at 593p prior to Russia’s invasion of Ukraine in February, set a  record high of 856p and are up more than 50% across 2022.

BP and Shell (LSE:SHEL) were not far behind at more than 40% higher, driven by their enhanced shareholder returns as the oil giants benefit from elevated oil and gas prices.

Shell’s profits topped $30 billion (£26 billion) in the first nine months and its latest share buyback of $4 billion (£3.5 billion) amounted to 30% of cash flow from operating activities.

The trading conditions have also been favourable for Glencore (LSE:GLEN), which has made the top 10 list of best-performing FTSE 100 stocks for the second year running.

Its shares are near to a record high, having benefited from exposure to the transition metals that are central to decarbonisation efforts such as copper, cobalt, zinc and nickel.

This year’s higher coal price has also supported Glencore’s decision to gradually phase out its mines by 2035, rather than to exit immediately as rivals have done. Shares are up more than 40% in 2022 and ended the year near 550p, but broker Liberum has a price target of 670p.

Higher commodity prices have also boosted the energy trading and nuclear generation assets of Centrica (LSE:CNA), leading to the company’s return to the ranks of FTSE 100 top performers.

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The shares were near 30p in the aftermath of the pandemic, but now stand above 90p after a year in which the British Gas owner gave shareholders their first dividend in three years.

Two stalwarts of the FTSE 100 index whose shares have comfortably outperformed in the year were Pearson (LSE:PSON) and Standard Chartered (LSE:STAN) after gains of over 50% and 35% respectively.

Pearson’s repositioning away from traditional educational textbook publishing towards technology-enabled training has paid off under the leadership of Andy Bird. He has made several accretive acquisitions and launched Pearson+, an online subscription service.

Standard Chartered owes its progress to more than just rising interest rates, having benefited from the economic recovery in many of its “footprint” markets in Asia and Africa.

Lower exposure to M&A and IPO activity, which has been a major headwind for Wall Street deal-centric lenders, has also reinforced its status as a top pick in the sector.

AstraZeneca (LSE:AZN) shares, meanwhile, have risen by a quarter as inflation and economic uncertainty boost the appeal of defensive sectors and as the drugs giant continues to deliver a robust trading performance. This was reflected in its recent upgrade to earnings guidance and a flurry of regulatory approvals that have included treatments for breast and liver cancers.

Housebuilders dominate losers board

Three of the worst performers of the year came from the housebuilding sector, led by Persimmon (LSE:PSN) after a drop in the region of 55%. A year that started with uncertainty over rising costs and potential fire safety provisions is ending with worries about how much the recent jump in mortgage rates will derail demand and impact prices.

Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.) have also fallen by over 40%, leading some City analysts to observe that the worst may now be in their prices given that the companies boast stronger balance sheets to withstand the crisis.

Liberum said: “We expect a better start to 2023 as mortgage rates settle to about 4.5% and we should see an improving market through 2023 as inflation and rate expectations calm.”

Other UK consumer-focused stocks under pressure in the year included JD Sports Fashion (LSE:JD.), which has fallen by around 47%.

The trainers and sportswear business had been at 233p in November 2021 but a combination of retail uncertainty, rising interest rates and the abrupt departure of long-serving executive chairman Peter Cowgill left the shares at 102.6p in June.

Grocery warehouse technology stock Ocado (LSE:OCDO) has been the worst-performing stock of the year, as well as one of the most volatile.

Its shares started the year above 1,500p, only to reverse to 380p by October as investors dumped growth and tech stocks on rate rise fears. Ocado’s loss-making outlook hasn’t helped its cause, but supporters see a market leader well placed to take advantage of an estimated $94 billion (£76.8 million) expansion of the global online grocery sector in the next five years.

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A partnership with South Korea’s Lotte helped shares recover to above 900p during the stock market rally of October and November, although they’ve since fallen back to 600p.

It’s also been a difficult year for followers of Scottish Mortgage (LSE:SMT) Investment Trust, which is down by around 40%. Just under a fifth of the portfolio is invested in China, where companies have faced a regulatory clampdown and disruption from ongoing Covid lockdowns.

Stakes in internet giants Alibaba (NYSE:BABA) and Tencent Holdings (SEHK:700) have been reduced over the year, but co-fund manager Lawrence Burns is excited by exposure to the likes of electric vehicle firm NIO (NYSE:NIO) and engineering business Horizon Robotics.

“It would be wrong to cut Scottish Mortgage holders completely off from the world’s second-largest economy,” he said recently.