A change in the weather could spark a change in fortune for your portfolio

This week's cold snap has sent some stocks soaring, says James Daley

Britain's cold snap may have chilled people caught out by the inclement weather, but it has warmed the hearts of investors in companies such as energy suppliers and retailers. The official onset of winter has sent energy prices - as well as some energy stocks - soaring, as investors have begun preparing themselves for what is forecast to be the coldest winter in a decade.

While the changing of the seasons is clearly no surprise to anyone, new weather patterns often are - and shares in energy companies usually respond quite sharply to an sudden change in the climate. For investors who get their timing right, there's money to be made.

Robin Batchelor, the fund manager of Merrill Lynch's World Energy fund, says that, by the start of this month, many investors had become nervous about the continued mild weather, leading the share prices of several energy stocks to fall slightly. However, over the past week, as the cold snap finally arrived, investors had once again repositioned themselves as a result.

"Certainly, in the energy funds we run, we have tweaked the portfolio to take advantage of the weather recently," he says. "We don't let the weather drive the portfolio, but you can't ignore it."

Batchelor adds that the onset of winter tends to move the market every year. "It can last anything from one to three months," he explains. "There's usually a pull-back before the rise, and then the market can increase anywhere from 10 to 25 per cent."

This month alone, the price of natural gas has risen more than five times in London, most of the move coming this week. Oil and coal prices have also been in the ascendancy as traders have begun to speculate that a shortage in UK gas supplies this year may force some industries to turn to alternative sources of energy.

As a result, almost all energy stocks have been on the climb over the past week, with companies such as Tullow Oil, BG Group and Dragon Oil gaining between five and 10 per cent in just a few days.

Batchelor issues a word of warning, however. "Normally, the main companies you would go for are the likes of Tullow Oil or British Gas," he says. "But we've avoided them this time, as we're a bit concerned the Government may change the tax on them."

John Kelly, the head of client investment at Abbey is another who is worried about the prospect of a windfall tax being imposed on the energy sector at next month's pre-Budget report.

"The weather has an impact on psychology," says Kelly. "Energy companies become villains as people's bills go up, so there's a chance that the oil and gas industry could suffer. Gordon Brown might say, 'here's a big industry making lots of profits - let's tax it more'. But if you take a £1 off BP's profits, that's £1 less they can spend in exploration."

Batchelor says that, as a result, he has turned his attention to the US in recent weeks, taking profits in many of his UK positions to avoid being caught out by an energy windfall tax which could take a heavy toll on the share prices of British energy stocks. Companies he currently favours stateside include EOG, Ultra Petroleum and XDO Energy.

Proving the point that the weather is a serious business for professional investors, Batchelor is able to instantly reel off a detailed weather report and forecast for the US, explaining that the north-east of America has finally just had its first bout of cold weather this week after a prolonged mild spell. He says this should be good news for his portfolio of US gas stocks.

Although energy is one of the most obvious sectors to be affected by changes in the weather, it is not the only one. With many industries increasingly dependent on either warm or cold spells, to boost their businesses, it is no longer unusual for companies to thank or blame the weather as they issue an upbeat trading statement, or even a profits warning.

John Lewis, for example, last week boasted that its sales for the week to November 19 were up some 5.8 per cent on the same period last year - not what had been expected given the recent consumer slowdown. According to the group, the cold snap had driven customers out in their droves to buy new jumpers, coats, hats and the like - helping the department store to a near record week of sales.

Hilary Cook, the director of investment strategy at Barclays Stockbrokers, says that John Lewis is not alone: "Burberry's already said it welcomes this cold snap, as it's selling thousands of pink duffle coats. What retailers always want is an early cold winter and an early warm summer - so they can sell their new season's stock."

Maureen Hinton, a retail analyst at Verdict, adds that the cold weather has not just been good for sales, but for profit margins as well. "The fact it has got colder over the past few weeks has been very good for retailers, as people have thought, 'I must get out there and buy some knitwear, or a new coat now', rather than waiting until the January sales, which would hit retailers' margins," she says.

Internet sites are also often among a group of businesses to cheer when a cold snap sets in. Party Poker, the internet gaming company, recently said it believed more people would stay home and use its websites when the weather was bad, while internet retailers believe consumers are more likely to do their Christmas shopping online if conditions are wet, cold and miserable.

From a negative perspective, Abbey's John Kelly points out that insurers can be hit particularly hard by a harsh winter, as they see an increase in claims for burst pipes or storm damage. Those insurers which are heavily exposed in the southern United States and the Caribbean are also dependent on the extent of the hurricane season which affects that region every year between August and October. Hurricane Katrina this year was the costliest ever for the insurance industry, and brought a small handful of insurers, who had not reserved adequately, to their knees.

Cook echoes Kelly's warning that the cold weather is, in fact, more often a bad thing for businesses than a positive, highlighting that the sharp increase in energy bills will ultimately have a knock-on effect to consumers' disposable income.

In practice, speculating on the weather to make your gains on the stock-market is a relatively risky business - certainly at a stock-specific level. Furthermore, investing directly in commodities is no easy business, unless you're willing to get involved in what is a high-risk world of derivatives trading.

However, following funds such as Merrill's World Energy may be a good way to cash in if you feel particularly strongly about where the weather is going over the coming months.

Winners and losers in a cold winter

* Energy companies: demand for extra heating buoys profits at gas and electricity suppliers, which pass on increases in the cost of fuel to customers. However, the predicted creation of a windfall tax on energy companies threatens share prices this winter.

* Retailers: unexpected cold weather may make people reluctant to leave home, but shops selling coats and other cold-weather gear can cash in. Retailers tend to benefit from an early change of season, so they can shift their newest stock.

* Online companies: businesses that trade over the internet are well-placed to cash in if people spend more time at home due to the bad weather.

* Insurers: bad weather leads to a rise in claims on home and motor insurance policies, which is bad news for investors in insurance companies. Extreme weather, such as this summer's hurricanes in the US, can have potentially disastrous effects on insurers' profits.

* Pubs: often blame a cold summer for a downturn in trading. Good weather tends to encourage more people to take refuge in beer gardens.

Shares to check out

* BG Group, which was spun out of British Gas, has seen its shares rise almost 10 per cent since mid-November.

* Shares in Dragon Oil, an energy companywhich taps the resources of Turkmenistan, rose more than 21 per cent in the days following the start of Britain's cold snap.

* Tullow Oil, which focuses on gas and oil production in the UK and West Africa, climbed more than 16 per cent in just 10 days this month.

* Shares in Hanover Re, the reinsurer fell more than 16 per cent in the weeks following hurricanes Katrina and Rita this summer.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Ramsay Bolton in Game of Thrones
tvSeries 5, Episode 3 review
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tv
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence