Understanding the FTSE 100 Surge

It’s been an incredible few months for the FTSE 100. The blue-chip index of London-listed companies has been soaring to record highs and is up over 8.2% year-to-date*.

This enthusiasm has been fuelled by the expectation of interest rate cuts this year, now that inflation is more under control. But what do you need to know about this index, which companies have risen the most this year, and what investment funds buy its stocks?

What is the FTSE 100?

The FTSE 100 index is made up of the 100 largest companies listed on the London Stock Exchange, ranked in order of their market capitalisations. This ‘market cap’ figure is calculated by multiplying the company’s stock price by the number of shares that it has issued. It is widely viewed as a barometer of UK investing health, even though many of the companies on the index are global businesses.

Healthcare has the largest sector weighting of 13.3%, followed by energy with 12.8% and the 12% of industrial goods and services**. The banks make it into fourth place with 10.5%**. A wide variety of other business areas are also represented within the index, including retail, media, real estate, insurance, basic resources, construction and travel & leisure. Of course, many of the companies in these areas are household names that make billions of dollars in annual revenues and have customers across the globe.

Who are the biggest companies?

The five largest companies in the FTSE 100 make up just under a third of the entire index. Oil major Shell is top of the pile with an 8.6% weighting, followed by pharmaceutical giant AstraZeneca on 7.9% and HSBC bank with 6%. Unilever, the personal care business, and oil company BP complete the list with 5% and 4.2% weightings, respectively.

Top performers this year

The best-performing stocks on the FTSE 100 have seen their share prices rise by more than 30% already this year.

Rolls-Royce Holdings (39.2%), NatWest Group (35.5%) and insurer Beazley (30.7%) have been the standout names from the start of January***. The other names – which have increased by between 15% and 29% – are Antofagasta, Barclays, BAE Systems, Intermediate Capital Group, Intertek Group, ConvaTec Group, and Associated British Foods***.

Getting exposure to FTSE 100

There are different ways of getting exposure to the FTSE 100. You can buy a tracker or exchange traded fund that will replicate its broad performance. You can also buy individual companies that are listed on the index. However, even one share in some of these multinationals can cost you hundreds of pounds.

A popular alternative is to put your faith – and money – in an active fund manager with the scope to choose the companies they want to hold. Portfolios in a variety of investment fund sectors, including those with a global focus, can choose to buy FTSE 100-listed stocks. However, you’ll often find these companies in the IA UK All Companies and IA UK Equity Income, as well as the various IA Mixed Investment sectors.

Here are five funds that we believe are worth considering.

Schroder Recovery

The aim of this fund is to deliver attractive capital growth by investing in companies with good long-term potential that have suffered business or price setbacks. Its largest individual holding is in NatWest Group^, the banking business that has enjoyed a strong start to 2024 and is one of the FTSE 100’s biggest risers. The fund, which is managed by Andrew Lyddon and Kevin Murphy, is particularly suitable for patient investors with longer-term investment horizons. For those wanting exposure outside the mainstream large-cap UK equities, we believe the Schroder Recovery fund has an intriguing selection of stocks.

Allianz UK Listed Opportunities

This is a contrarian value UK equity fund that invests in UK businesses of all sizes, although it currently has exposure to multinational giants such as GSK, British American Tobacco and Shell^. Richard Knight is the fund’s manager and we like his flexible, pragmatic nature, and insistence that the portfolio doesn’t stray too far from its core value principles. It has a high-conviction strategy that’s based on the idea of buying cheap companies that are trading below their fair value – and then benefitting as they prove the market wrong.

Read more: The resurgence of value investing

Janus Henderson UK Responsible Income

If you want to invest in UK companies – but in a responsible way – then this portfolio could certainly meet your needs. Its manager, Andrew Jones, who has been at the helm since 2005, is very experienced and adopts a common-sense approach to running the portfolio. The fund’s avoidance criteria means there are no holdings in sectors such as mining, energy or aerospace & defence. Currently, the fund contains a blend of domestic and internationally-focused companies, with the manager concentrating on robust free cash flows and strong balance sheets.

BNY Mellon Multi-Asset Income

This fund, which sits in the IA Mixed Investment 40%-85% shares sector, aims to achieve a stable income with the potential for capital growth over the long term. Although the UK accounts for a 43% share of the geographical allocation^, this portfolio invests in companies based around the world. This means its exposure to the FTSE 100 will be more diluted, although defence giant BAE Systems is one of its largest holdings^. Since launching in 2015, the fund has been a consistently strong performer, whilst maintaining an attractive yield.

CT UK Equity Income

Our final suggestion, which is managed by the very experienced Jeremy Smith, focuses on buying unloved companies that have the ability to sustainably grow their dividends. While there is no restriction on size of company held, he will generally focus his attention on the larger companies in the FTSE All-Share Index. The fund is unconstrained and has a ‘contrarian value’ bias, with Jeremy looking for hidden gems and businesses with long-term potential. The fund currently has holdings in a number of FTSE 100 giants, including Imperial Brands, GSK, Unilever, AstraZeneca and the Marks and Spencer Group^.

*Source: London Stock Exchange, as at 8 May 2024

**Source: FTSE Russell, 28 March 2024

***Source: Morningstar Direct, as of 23 April 2024

^Source: fund factsheet, 31 March 2024