2011: a year of ups and downs downs

With the Footsie hitting its peak in February, defensive stocks have taken centre stage in the past 12 months. Household names and new issues alike have found it tough, reports Toby Green

And it all started off so well. When the bell rang on the first trading day of 2011, with the Footsie at a two-and-a-half year high of 6,013.87, dealers would have been forgiven for feeling pretty confident about the year ahead.

Yet by October the benchmark index had dropped to below 5,000 points for the first time in over 12 months, making previous predictions by some experts that 7,000 points could be an achievable target during the year look, in hindsight, laughable.

While blue-chip stocks have managed to partially recover since then, the eurozone debt crisis never far from investors' minds.

Yet the first proper slide of 2011 came as a result of events in Asia. Little more than a month after the Footsie closed at 6,091.33 in February – which would turn out to be the year's peak – a devastating earthquake and tsunami hit Japan, prompting the index to shed nearly 250 points in just four sessions.

Stocks actually managed to recover fairly quickly, but they did not find it so easy in August. A raft of worrying economic news – including the US losing its AAA credit rating from Standard & Poor's and eurozone bond yields shooting up – meant panic swept global markets, and the Footsie fell nearly 10 per cent in just five days.

Since then, the market has remained extremely volatile to any signs of further slowdown. The eurozone crisis has been the main cause of headaches for investors, with a seemingly endless number of summits between politicians, none of which has inspired confidence that they have it under control.

It is not surprising, therefore, that among the blue-chip companies, the defensive stocks have performed particularly well. Drugs maker Shire tops the list in what has been a strong 12 months for pharmaceutical companies in general while cigarette makers British American Tobacco and Imperial Tobacco also make it into the top 10. The pressure on consumers' wallets has been a key theme, and it's been a terrible year for a number of high street stalwarts – Thomas Cook, Mothercare and HMV are just three who will not look back on 2011 with fondness. There have also been some new faces. In May the UK saw its biggest-ever IPO with the $60bn float of Glencore while last week steelmaker Evraz and gold producer Polymetal became the first Russian companies to trade on the UK's top-tier index.

Gold companies may have actually performed relatively well, but Evraz and Glencore will certainly be hoping 2012 is a better year for the rest of the commodity stocks – miners and energy groups make up half of 2011's bottom 10.

Good year

Shire - Share price rise: 41.8 per cent

Perhaps, considering the numerous travails that have faced investors over the recent months, the fact that a defensive-minded stock such as Shire has turned out to be the best blue-chip performer – and by a long way – is hardly a shock. Yet while the healthcare sector across Europe as a whole has done well, the drugs maker has had a much better year than its blue-chip peers GlaxoSmithKline and AstraZeneca. Speculation Shire could be snapped up by a predator has played a role, but it has also managed an impressive run of results, thanks partly to demand for its hyperactivity drugs from the US.

Arm Holdings: 36.9 per cent

The second-highest riser in 2010, it has been another highly impressive year for Arm. The Cambridge-based chip designer has continued to be buoyed by Apple using its technology in the iPhone and iPad as well as gaining an increasing share of the wider smartphone market, while back in January Microsoft announced its latest version of Windows would be able to run on Arm's chips. Unsurprisingly, the prospect of a possible takeover has also helped keep investors interested, with Apple, Oracle and Intel all finding themselves linked on the rumour mill as potential bidders.

Next: 36.3 per cent

It has been a frankly terrible year on the high street, with a number of closures and many other names threatening to disappear. Yet even though it fell to a 12-month low back in March, Next has ended up as the third-best blue-chip performer of 2011. The fashion chain has managed to post impressive figures despite consumers finding themselves increasingly squeezed for cash, while there has also been a lot of optimism surrounding the potential of its online and catalogue operations.

Aggreko: 34.56 per cent

2012 may find Aggreko involved in the world's greatest sporting event, but 2011 has not been bad for the temporary power supplier either. The group – which will be providing the power for the London Olympics – has managed a very strong year despite the unrest in the Middle East and North Africa, regions which are seen as important growth areas. Yet even though its share price has jumped more than a third over the past 12 months, Aggreko's many fans believe there could be greater performance ahead, especially since it increased its profit forecasts last week after a strong end to the year.

Tate & Lyle: 33.2 per cent

Like almost all stocks on the blue-chip index, Tate & Lyle suffered a dip in the summer, but by the middle of August the steady climb it had enjoyed in the first half of the year was back on track. There has not exactly been a lot of excitement around the food ingredients group, although there have been some instances of revived takeover speculation giving it a boost. More importantly, Tate has released a number of very solid results, including most recently in November when its first-half figures beat expectations. However, there are some analysts in the Square Mile who believe the company will find it hard to rise much further in the short term.

Bad year

Essar Energy: Share price fall: 69.93 per cent

When Essar Energy floated in May 2010, it suffered the worst debut session for eight years. For the rest of that year, however, things went much better for the India-focused energy group, which reached almost 590p at its peak. 2011, on the other hand, has been almost universally terrible, and while fears over global economic growth means commodity stocks dominate the loser board, Essar has been the worst hit. News flow isn't exactly boding well for 2012 too – last week its chairman Ravi Ruia said he was temporarily stepping down after Indian federal police filed fraud charges against him.

Vedanta Resources: 59.52 per cent

Vedanta Resources finished 2010 waiting to hear whether the Indian government would approve its acquisition of a controlling stake in Cairn Energy's unit in the country. Uncertainty around the deal ended up dominating much of 2011 as well with it only being completed this month. The saga – caused by a dispute over royalty payments – has cast a shadow ove Vedanta for investors, who have been worried about the level of debt it has left the miner with. There have been concerns over the possibility of it breaching its covenants, and although analysts have played this down, it hasn't stopped the issue weighing on its share price.

Lloyds Banking Group: 60.9 per cent

From the eurozone crisis to Sir John Vickers' call for a ring-fencing of their retail operations, banking stocks have been hit again and again in 2011. Yet Lloyds has ended up as the worst thanks in no small part to its Spanish boss Antonio Horta-Osório, right, having to take sick leave. The former head of Santander UK started in March and quickly introduced a raft of job cuts. Yet in November it was announced he was taking temporary leave. He is expected to resume his position in the next fortnight, which hopefully will remove at least one uncertainty around the group.

Man Group: 56.79 per cent

Investors have been left terrified by the volatility experienced this year in the markets, and Man Group has particularly suffered the consequences. The world's largest listed hedge fund manager announced back in September that £1.6bn in funds had been pulled out over the last three months, prompting a five-day slump in which its share price lost a third. There certainly hasn't been any improvement since, which has not been helped by an increasing amount of unhappiness with recent returns from the hedge fund industry generally.

Royal Bank of Scotland: 47.43 per cent

With Royal Bank of Scotland joining Lloyds in the bottom five blue-chip stocks of the year, the chances of taxpayers getting their money back from the state-owned groups has not exactly improved in 2011. The average value of the government's RBS stake is around 50p (Lloyds is roughly 74p) and this now seems a very long way away. One thing that analysts believe might help, however, is a disposal or closure of its Hoare Govett stockbroking unit – something it is reportedly considering – while George Osborne has effectively ordered it to scale back its investment business.

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