Glencore's stock market ride has put it on track for its best week ever, with a gain of 40 percent. Whether it will recapture broad investment appeal anytime soon is another matter. The global commodities trader and mining company has fallen around 60 percent over the last 12 months, dropping as much as 30 percent in one day in September. Investors feared it was not doing enough to cut its debt in the face of a collapse in metals prices and an emerging-markets slowdown.
Glencore's weight on the bluechip UK FTSE 100 equity index has more than halved to 0.9 percent from 2.2 percent over the past year, according to FTSE figures. While it is not in danger of falling off the FTSE 100, as the 30th-biggest stock on the index, a year ago it was the 12th-biggest. And fund managers remain wary about getting back into the stock, which fell 30 percent in a single session just a few weeks ago and trades in relatively wide ranges each session.
"We've seen positional and technical trading in Glencore, which will dissuade many other investors - anyone who has a time horizon of longer than about five seconds - from getting involved until the price settles down," Russ Mould, Investment Director at AJ Bell, said. Glencore's high debt and unique company structure, which involves mining and commodities trading, contributed to its volatility, investors said. By comparison, peers BHP Billiton and Rio Tinto have maintained their position as top-15 UK listed stocks, down only 15 to 20 percent since last October.
Eric Moore, equity fund manager at Miton, said he was happy to avoid the unpredictable swings in Glencore, in favour of owning BHP and Rio. "It's completely extraordinary to see a FTSE 100 share flying around like it's a penny stock... (and) most long-only people would have been put off by the volatility in Glencore," he said.
"These investors are relatively happy to forgo the stock bouncing," he said - the stock's decreased index weighting made it less influential when considering how portfolios should be managed. AJ Bell's Mould said that Glencore's highly leveraged business model meant that it had become a proxy through which European investors could play concerns over China.
Much of the recent rally has been attributed to speculative bets by hedge funds, who had built up substantial short positions in the stock. Bets on future price falls have ramped up in Glencore, with data from Markit showing that the "utilisation" rate, a proxy for short bets on a stock, is at its highest level this year. While volatile share prices creates opportunities for profitable speculative trades, they can easily go awry, and such conditions only make long-only fund managers more wary.