These four sectors will make or break the FTSE 100's record winning streak
The FTSE 100 has been in sensational form since returning from the New Year's break, having made a record high of 7143 moments before trading closed for 2016.
The index has powered further and clocked up a ninth consecutive record closing price on Tuesday (10 January) at 7275. This represents the longest winning streak in the index's history.
The question for investors now is whether this momentum can be sustained moving on through 2017, a year that promises to be trying with plenty of potential political shocks along the way.
FTSE 100'S FOUR KEY SECTORS
According to analysis by AJ Bell, though, the fortunes of the UK's blue-chip index rests on the performance of four key sectors: banks, insurers, miners and oil & gas producers.
These sectors represent a combined 45 per cent of the FTSE 100 by market capitalisation and, according to Russ Mould, investment director at AJ Bell, wield the greatest influence on the index.
MAKE OR BREAK FOR THE FTSE 100
An aggregate of bottom-up analysts' consensus forecasts shows that these sectors are forecast to provide 48 per cent of FTSE 100 firms' total profit and 50 per cent of total dividend payments in 2017, Mould elaborates.
The table above (click to enlarge) shows this, with banks and insurers bracketed together in the 'financials' bucket.
'However, this quartet's influence looks all the more potent when their contribution to growth in earnings and dividends is assessed,' Mould adds.
'In this case, they are forecast to provide 76 per cent of the anticipated £48.7 billion increase in FTSE 100 pre-tax profits and 52 per cent of the projected increase in dividends [as shown in the table below].'
These sectors do tend to be somewhat cyclical, though, so will not be to every investors' taste - as demonstrated by the recent long run of popularity the more reliable, defensive parts of the market, so-called 'bond proxies', have enjoyed.
Mould concedes this, pointing out all four sectors 'disappointed shareholders in 2014 and 2015 before roaring back into fashion in 2016'. 'For the FTSE 100 to perform strongly in 2017, these areas all need to deliver the profit and dividends expected of them,' he continues.
'All four are suited by the market's current preferred narrative, namely that economic growth and inflation will accelerate in 2017 thanks to a shift from austerity to fiscal stimulus.
'If this scenario pans out as expected, then the dollar, oil, metals prices and government bond yields could all rise, to the potential benefit of the key mining, oil, bank and insurance sectors.
'If that agenda gets blocked or fails, or fails to generate the expected improved momentum, then there could be trouble ahead.'
AJ Bell analysed the top 10 performing large-cap UK equity funds and found that two had overweight positions in each of the named sectors: Majedie UK Focus and Lazard UK Omega Retail.
A further four - Invesco UK Equity, Barclays UK Alpha, RWC UK Focus and Majedie UK Equity - were overweight in total, but had an underweight position to at least one of the sectors.