The FTSE 100’s quiet rise to its all-time high

Darius McDermott 18/01/2023 in UK

The UK stock market has been unloved for quite some time. Ever since Brexit back in 2016, it’s been shunned by overseas and domestic investors alike. And while the US stock market charged ahead, the UK’s FTSE 100 flagged.

In more recent times we’ve had a lacklustre economy to deal with, (we are the only G7 nation yet to recover all the GDP lost during the pandemic slump*), disastrous ‘mini-budgets’ and a revolving door at Number 10 Downing Street, inflation is persistently high and interest rates are rising. Public sector strikes are almost a daily occurrence across multiple industries and it’s likely we will go into recession in 2023.

But are things now on the up? 2022 was a good year for the UK’s largest companies. While almost every other major stock market experienced declines, the FTSE 100 rose 4.7% over the calendar year**.

And, despite the chaos caused by the Truss-Kwarteng budget just three months ago, the UK’s leading index has matched its all-time high. At the time of writing, it is 7,866 – just 37 points off its May 2018 intra-day high of 7,903 and 2 points ahead of the end of day figure that day.

Why is the FTSE doing so well?

When everything around us is doom and gloom, it’s hard to understand why the stock market is booming. But the key is to remember that stock markets tend to move ahead of economies, so often, by the time a country goes into recession, the stock market has already bottomed and is on a path to recovery.

It’s also important to understand what has been driving the performance.

Darius McDermott, managing director of FundCalibre, says: “The big drivers of performance in the FTSE 100 during 2022 were the mega caps – the 20 or so very largest companies in our stock market.

“These companies, particularly those in the healthcare and the oil and energy sectors, have benefitted from being global businesses and dollar earners – so when the dollar has appreciated against the pound it has been to their advantage.

“AstraZeneca, for example, has seen its stock price rise by more than 30% over the past 12 months***, while the likes of Shell, BP, Rio Tinto, and Glencore are up 49%, 50%, 32% and 57% respectively***.

“From the names above you can also see that oil and mining companies have also benefitted as the cost of commodities has increased. Our ‘old fashioned economy’ came into its own when more modern sectors suffered.”

Can the good times continue?

So, can investors expect the FTSE to continue to rise?

“The market is still under-owned by global investors,” said Darius. “So, money could potentially come back as investors begin to appreciate the unique composition of the larger end of our stock market. Even if inflation falls, we don’t think it will go back to 2% any time soon and, in this different environment, UK companies could continue to do well.

“If you believe in the electrification story, it also bodes well for the mining companies. There are very few listed elsewhere in the world, so this is a medium to long-term trend that could boost these companies.

“But if we get a deep recession a lot of these areas are quite cyclical, so the FTSE 100 could also see its value fall. And with so much uncertainty in the world, there is likely to be volatility either way.”

Should you invest in the UK Stock market today?

“If I was investing in the UK today, I would look beyond just the FTSE 100,” concluded Darius.

“This part of the market has already enjoyed a decent run, and although it may continue, I do see value in the smaller and medium-sized companies that had such a bad time last year.”

Indeed, the managers of Schroder Income and Schroder Recovery have started to take profits from their large-cap winners and add to both medium-sized companies and consumer rated stocks.

One option would be to invest in a multi-cap fund – a fund that invests in UK companies of all sizes: large, medium, and small.

Here are three such vehicles, which are Elite Rated by FundCalibre:

IFSL Marlborough Multi-Cap Growth

This fund takes an unconstrained approach, investing in small, medium, and large UK companies. It will be concentrated in around 40-70 names – principally in businesses that are leaders in their sector and that can grow regardless of the prevailing economic landscape.

JOHCM Dynamic

Manager Alex Savvides uses a distinctive ‘change’ investment strategy, looking for sustainable improvement from stocks which can create idiosyncratic sources of return. Alex is a pragmatic manager, and not afraid to look at companies that have been beaten up by the market. The portfolio is multi-cap, often with a mid-cap bias.

SVM UK Opportunities

This fund is a hidden gem in the crowded and highly competitive UK market. The team has the flexibility to invest across the market cap spectrum in the UK and, while the fund has a value tilt, it is not beholden to a fundamentalist value philosophy and the manager will invest in growth stocks where he sees opportunity.

*Source: Rathbones, 16 January 2023
**Source: FE fundinfo, total returns in sterling, calendar year 2022.
***Source: FE fundinfo, 17 January 2023, total returns in sterling


Photo by Jamie Street on Unsplash

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.