FTSE 100 stocks have been seen something of a surge in recent weeks. There are several reasons for this. More confidence in political stability, falling gas prices and lower than expected US inflation. All these factors have contributed to the index’s recovery after Liz Truss’s economic policies sent stocks down. But today, I’m focusing on just two.
Downward trends
Hargreaves Lansdown (LSE: HL) is one of the worst performers on the FTSE 100 this year. It’s down a whopping 44% over 12 months.
But Barclays (LSE: BARC) hasn’t performed well for shareholders either, despite some serious tailwinds in the form of higher interest rates. The stock’s value is down 19% over the year.
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Slowing growth
Hargreaves surged during the pandemic as users flocked to its investment supermarket platform. However, as the economy reopened, Britons had other things to do, and the growth in active users has slowed. Now there are also concerns about how the cost of living crisis is impacting Britons and their capacity to invest as pockets get squeezed.
Despite this, a trading update on 17 October highlighted the firm brought in net new business of £700m in the quarter to 30 September, with assets under administration reaching £122.7bn. So, at least the business isn’t going backwards.
Reasons for optimism
There are several good reasons that make me want to buy more Hargreaves Lansdown shares. Firstly, one in 10 Britons started investing during the pandemic and now some 1.7 million people now use the direct-to-consumer Hargreaves platform. This is clearly a solid foundation for future growth.
In the short run, there’s a big bonus which should make up for revenues lost due to the cost-of-living crisis. Hargreaves is set to make £200m in the next year as a result of higher interest rates on cash deposits.
But, more broadly, I see Hargreaves as a solid long-term purchase for my portfolio. And that’s because I see Britons increasingly taking charge of their own investments. It’s also got an attractive 4.5% yield.
A bad year
Barclays has underperformed its peers this year. That’s largely due to securities sold in error. The trading blunder saw it agree to a penalty of $361m with US regulators. And as economic conditions worsen, the bank has had to put more money aside for bad loans. Impairment charges for the third quarter rose to £381m, up from £120m a year ago.
Long-term prospects
I’m hoping the economic downturn isn’t going to be particularly deep. And there are reasons to think that might be the case. For one, gas prices are sinking and, in time, this should help bring down inflation. I admit inflation will be sticky but, hopefully, not all of the money set aside for bad debts will be needed.
But there’s one huge tailwind right now. That’s interest rates. For more than a decade, interest rates have been near zero. But now, with Bank of England base rate at 3%, net interest margins (NIMs) — the difference between rates on loans and deposits — are rising. In fact, in Q3, Barclays NIMs reached 2.78%, from 2.53% a year before. This makes a huge difference to the bottom line.
With interest rates expected to remain higher in the coming years, I’m buying more Barclays shares despite the recent underperformance.
