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 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 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, Antofagasta and Tullow Oil, 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