The FTSE 100 at 35

Earlier this month, the FTSE 100 marked its 35th anniversary. Of the hundred companies that made it onto the inaugural list in 1984, just 27 remain today – including Barclays, BP, Marks & Spencer and Unilever.

1984 was the year of miners’ strikes, Band Aid and Torvill & Dean’s ice-skating Olympic gold medal. It was also the year that Nissan signed an agreement with the British government to build a car factory in Sunderland – a landmark deal that meant “foreign” cars would be built in Britain for the first time. This was significant and perhaps precipitate a change in the make up of the UK economy.

How our stock market has evolved

According to M&G Investments’ Ritu Vohora, back in 1984, the largest industry sector in the FTSE 100 was industrials, representing almost a quarter (24%*) of the index. It was followed by consumer services (20%*) and financials (15%*).

Today, industrial companies represent just 7.8%* of the index. Instead, financials have taken the lead (20%*), followed by oil and gas (17%*) and consumer goods (15%*).

Updated every quarter, the FTSE 100 has, over the years, mirrored the changes caused by the global economic revolution we have all witnessed. Through mergers and acquisitions, failures and promotions, and the index has evolved from being very UK-centric to more global-facing: more than 75% of the index’s revenues are now derived from overseas.

Remember Alliance & Leicester? It is now part of Santander. Drug company Beecham Group merged with SmithKline, then later Glaxo. British Steel is now part of Tata Steel and Blue Circle was acquired by Lafarge.

At the same time other companies have simply failed: Polly Peck collapsed in 1990, Railtrack in 2001. Others, like Tate & Lyle and Ladbrokes, simply became too small to stay included.

Performance good – but eclipsed by Lowland Investment Trust

The FTSE 100 has returned 587.99%** over the past 35 years. The only Elite Rated UK fund to have been around for that length of time is Lowland Investment Trust.

Run by Janus Henderson’s James Henderson since 1990 and co-manager Laura Foll since 2016, it has returned and impressive 2,209.12%** over the same period, highlighting the benefits of active management and gearing.

Neither of these two performance figures include reinvested dividends as the data doesn’t go back quite that far. But when you consider the FTSE 100 yields close to 5% today, reinvesting any dividend payments you receive could further enhance your returns in future.

How may it change in the future?

Given Britain’s imminent departure form the European Union, in the future we may see more influence coming from the US or emerging markets like China and India – all depending on what trade agreements our government is able to secure.

In the short-term, a decline in sterling has made quality UK businesses look very attractive to foreign buyers. While mergers and acquisitions of UK companies by European companies fell last year, M&A deals with US companies more than doubled***.

Or, if populism continues to rise, we could see the FTSE 100 return to a more domestically-focused index.

Longer-term, we may see a change in the size of certain sectors. The UK technology sector, for example, is still small but we have a number of exciting, cutting edge companies. Most currently get their expansion funding from venture capital, private equity and AIM listings, but as they grow, so too could their dominance.

In contrast, as the world moves away from using oil & gas, instead choosing clean and renewable energy, this could have a significant impact on companies such as BP and Shell. Likewise, our retail sector is under increasing pressure from online competitors.

High street names such as M&S are already perilously close to the bottom of the FTSE 100 index and could soon find themselves in the FTSE 250 – if they manage to survive at all.

Only time will tell what the FTSE 100 will look like in 2054!

 

*Source: M&G, Celebrating 35 years of the FTSE 100
**Source: FE Analytics, price returns from 3 January 1984 to 17 January 2019.
***Accountancy Age, 24 September 2018

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.