Although the FTSE 100 has become shorthand for the ups and downs of the London market, it arguably doesn’t even do that very well
I wasn’t quite there for the birth of the FTSE 100, 30 years ago this week. If the UK’s benchmark stock market index were a person, I would have been dropping it off at primary school when I started writing about investment in the late 1980s. Now, to squeeze the analogy a bit harder, I’m counting the cost of its wedding.
Measured against a human lifetime, it is perhaps unsurprising that the world viewed through the prism of the Footsie looks so very different today from when the index was launched on January 3, 1984, with a starting value of 1,000. Its constituents over three decades read like a memorial to Britain’s industrial past.
It is pure nostalgia to run a finger down a list that includes Beecham, Burmah and Burton, GUS, Grand Met and Granada. Jaguar’s acquisition by Ford seems like yesterday and I remember well landing on a North Sea oil rig as Ultramar fought rival Lasmo’s approaches. I naturally approved of Fisons’ sponsorship of my football team, Ipswich Town. But it’s a glimpse into another world successful business supporting its local team.
It’s been a roller-coaster ride. For the first 15 years it was up, up and away if you gloss over the Great Crash of 1987, easily done because it is only a blip on the chart today. The next 15 have been harder work. Having peaked at 6,930 on New Year’s Eve (Shenzhen: 300014.SZ – news) 1999, the value of the UK’s leading companies has halved and doubled not once but twice and still unless wisely we have reinvested our dividends we haven’t quite made it back to the dot.com peak.
Along the way, the FTSE 100 has kept the score during Margaret Thatcher’s Big Bang and the privatisations that took off with BT’s float during the index’s first year. It has measured investors’ progress through recessions, manias, booms, corrections and a financial crisis. We’ve had Black Mondays and White Wednesdays, plenty of meltdowns and something close to a melt-up in November 2008, when the index rose almost 10pc, its best one-day performance.
The membership of the FTSE 100 is not just a measure of the shift in the UK economy from manufacturing to services. It is also an illustration of London’s role in a globalised financial marketplace, with many of the index’s constituents using the London Stock Exchange (Other OTC: LDNXF – news) as a listing of convenience, unrelated to their provenance or where they might actually do business.
In some ways this makes the FTSE 100 an even more flawed index than the FT 30 it effectively replaced. Despite its mechanistic calculation it simply includes the largest 100 qualifying companies listed on the LSE it is arguably less representative of its domestic economy than its predecessor, whose constituents, like the Dow Jones index’s, are chosen with that aim in mind.
With its preponderance of miners, banks, oil companies and pharmaceuticals, Footsie is much more a reflection of global economic trends than the health of UK plc. The FTSE 250 does a better job of that, so it is gratifying that it has outperformed the blue-chip index by a wide margin in recent years.
Although the FTSE 100 has become shorthand for the ups and downs of the London market, it arguably doesn’t even do that very well. During 2013, the index rose by 14.4pc, but no investor actively choosing which shares in the index to buy would have replicated that performance because the dispersion of returns around the average is huge.
The best performer last year was British Airways owner IAG, which more than doubled in value. At the other end of the list, Fresnillo (Other OTC: FNLPF – news) was the worst of a handful of miners to be caught in the downdraft of the Chinese slowdown. It fell by 60pc.
It was those natural resources businesses including Anglo American (LSE: AAL.L – news) , Antofagasta (Other OTC: ANFGF – news) and Tullow Oil (LSE: TLW.L – news) , which all lost more than a third of their value which ensured that the FTSE 100 only rose by half as much as the S&P 500 last year.
So, while I’m the first to congratulate the FTSE 100 index on completing its first three decades, I don’t follow its rather narrowly defined fortunes too slavishly. Having said that, I can’t remember a day when I haven’t raised a quiet cheer to a rising Footsie or fretted a bit when it headed the other way.
Tom Stevenson is an investment director at Fidelity Worldwide Investment. The views expressed are his own. He tweets at @tomstevenson63