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Analyst sell ratings outperformed buy ratings in 2019

By Marianne Curphey

UK analysts' sell picks were better bets than their buy recommendations last year

UK analysts' sell ratings outperformed buy ratings in 2019, with a much better return for stocks they recommended should be sold, than those they suggested that investors might buy.

Analyst sell ratings for the FTSE 350 delivered a positive return of 28.9 per cent in 2019. That outperformed the index return of 19.2 per cent and the 23.2 per cent return delivered by their buy ratings.

According to the report by the broker AJ Bell, which has aggregated buy and sell advice, analysts fared better when looking at just the FTSE 100 . In that case, their buy ratings returned 23.2 per cent compared to 18.4 per cent from their sell ratings and 17.3 per cent from the index.

The highest proportion of sell ratings for 2020 are on Hargreaves Lansdown and Mike Ashley’s recently renamed Frasers Group. Melrose Industries and NMC Health have the higher proportion of buy ratings in the FTSE 100

Russ Mould, investment director at AJ Bell, said: “We have back-tested the performance of analyst ratings since 2015 and the conclusion from 2019’s data is the same as in prior years, namely that the value in analyst research lies in their commentary and analysis, while the ratings themselves need to be treated with a huge dollop of caution.

“The good news, from the brokers’ point of view, was that the FTSE 350 stocks with the greatest percentage of ‘buy’ ratings went up and – on average – provided a total return which exceeded that of the index. The bad news was that the stocks with the greatest percentage of ‘sell’ ratings not only beat the index but outperformed their buy ratings."

He said the broking community is carrying the lowest percentage of buy ratings and the highest percentage of sells going into 2020 since AJ Bell began this annual survey, at least so far as the FTSE 100 is concerned.

FURTHER READING: Equities should outperform for another year

FURTHER READING: Total value of UK dividends rose by 3.6 per cent in 2019

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