‘As the FTSE turns 40, it appears to be verging of the edge of a mid-life crisis, feeling shunned by some investors. But the reliable credentials of the index shouldn’t be underestimated. There have been plenty of setbacks in recent years, including the Brexit hangover, political turmoil and inflationary headaches, which are partly to blame for a drought of new big listings. But, in marking this milestone, it’s worth highlighting the dependable characteristics of this index, rather than wallow in what appears to be a crisis of confidence. After all, there have been plenty of ups and downs over its lifetime, ranging from the effects of the dot-com boom and bust to the Great Financial Crisis and, of course, the pandemic - but these seismic events have been followed by recoveries.
Although the Footsie has changed a lot over the past four decades, with many household names disappearing, 26 "ever present" companies still stand proud in the list, although many have been rebranded. The combined value of its constituents totals around £1.9 trillion, keeping it firmly near the top of the exchange pack. Investors should always have their eye on a long-term horizon and, since its inception in 1984 up until the end of 2023, the FTSE 100 rose by 673%, outperforming gold and UK government bonds.
Publisher Relx, first listed on the FTSE 100 as Reed International, has produced the largest share of market returns over the last four decades, closely followed by British American Tobacco and Rio Tinto. Of the 26 original constituents which were in the FTSE 100 back on 3 January 1984, 15 have risen over the past year. The biggest gainer was Marks and Spencer, up 115%. Four names -JD Sports, Ashstead, London Stock Exchange Group and Diploma - have regularly popped up as being among the biggest risers over key time periods. All four companies were in the top ten performing stocks, over the last twenty years, over the last ten years and over the last five years, and all ended 2023 having gained double digits. While tech stocks hold huge weight on the Nasdaq and S&P 500, most don’t pay dividends, unlike many of the constituents of the FTSE 100. Listed multinationals have global sources of income and are highly cash generating, so are more reliable income producers.
Given the global nature of the index, it’s not such a bellwether of the UK economy as the FTSE 250, but it is still a useful measure of sentiment towards big British corporates and the outlook ahead. Despite the pessimism shown towards UK stocks recently, the circling of private equity firms over the index, pouncing on choice names, is a sign that UK listed companies could be good candidates for a resurgence in valuation. Inflation is set to continue heading in the right direction, albeit not in a straight line, and interest rate cuts are expected to start later this year. This should ease pressure on companies needing to refinance and on consumers, offering a tailwind to discretionary stocks. If interest rates do start heading lower, that’s likely to benefit housebuilders but also banks, given that fears of loans turning bad should dissipate. Hopes are high that the US economy will have a soft landing, reducing a threat to global growth, which would help commodity stocks. Crude prices may have suffered in recent months, but with conflict in the Middle East, and OPEC+ poised to take further action to reduce supply, energy costs are likely to stay elevated helping oil giants. Of course, there may well be other events which intervene to trip up progress, but the FTSE 100 remains undervalued compared to its global peers and looks set to recover in 2024.’’
Susannah Streeter is head of money and markets at Hargreaves Lansdown
