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