Industry Updates

ETF Wrap: Almost forty years of FTSE 100

The UK benchmark returned 54% since peak pandemic volatility in March 2020

Jamie Gordon

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The FTSE 100 broke through an all-time-high 8,000 points this week. Within a year of its fortieth birthday, it is worth taking a whistle-stop tour of what has happened and what lies ahead for the UK’s headline equity index. 

As the benchmark had its milestone moment this week, it has booked returns of 699.8% since it went live on 3 January 1984, with just 23 of the original cohort of stocks remaining in the index for its duration, according to Refinitiv. 

Among these is the best-performing constituent, British American Tobacco, which has returned 6891.1% during its 39-year membership. 

However, not all have fared so well, let alone over the past two decades. While the FTSE 100 broke through four 1,000-point markers in the nineties, it took the index 17 years to eek out the rift between 6,000 and 7,000 that it finally hit in March 2015. 

In fact, it is up just 10.6% over the past five years and 25% since the turn of the millennium. 

Rob Morgan, chief investment analyst at Charles Stanley, said: “Admittedly, this represents an unflattering starting point. The index was puffed up by unsustainable valuations of ‘TMT’ stocks during the dotcom bubble in the late 1990s. Yet it has been a clear laggard against the US or emerging markets where investors have comfortably trebled their money – in capital growth terms alone.

“Where the FTSE has stood out, and consequently generated respectable returns, is dividends – the profits declared by companies and paid to shareholders. Reinvesting these for growth has boosted returns substantially, and the old-fashioned values of seeking out sustainable and growing pay outs from shares are a large part of why the index has hit the landmark of 8000 points.”

FTSE 100 millennium milestones

  • 1000: 30/12/1983 

  • 2000: 04/03/1987 

  • 3000: 11/08/1993 

  • 4000: 02/10/1996 

  • 5000: 06/08/1997 

  • 6000: 01/04/1998 

  • 7000: 20/03/2015 

  • 8000: 16/02/2023 

Interestingly, the benchmark has gone through something of a renaissance in recent years, surging 54% since March 2020, amid a weaker pound and outperformance in energy and healthcare stocks. 

Laith Khalaf, head of investment analysis at AJ Bell, noted a good degree of this success can be traced back to Russia’s invasion of Ukraine.  

“This helped buoy the share prices of the oil and gas sector, and the financial sector too, as the fight against increased inflation has meant interest rates have also had to rise, boosting bank reserves,” Khalaf said.  

“A weak pound has also helped propel the FTSE upwards, thanks to all the overseas earnings made by the companies within it. It’s notable that the last calendar year in which the FTSE 100 outperformed the S&P 500 was in 2016, when the pound also took a hammering following the EU referendum.” 

Steve Clayton, head of equity funds at Hargreaves Lansdown, added recent gains could owe to lower-than-expected UK inflation data – but investors should not jump the gun on a Bank of England pivot. 

“Inflation is still in double digits and unemployment low. Given the BoE has a two percent inflation target, pausing any time soon could look like being asleep at the wheel, if subsequent data looks less promising.” 

Looking ahead, the tobacco and energy overweights of the FTSE 100 may cause friction with the growing ESG movement, however, an end to the low interest rate environment of the last decade might push investors to look beyond the tech, communications and biotech-heavy allocations of twenty-teen winners such as the S&P 500. 

ETF Wrap is a weekly digest of the top stories on ETF Stream

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