The FTSE 100 deserves to underperform its rivals
The FTSE 100 turns 40 on January 3, having launched on that date in 1984 at a starting value of 1,000. The UK’s market benchmark currently stands at a little under 7,500, which might not sound too bad – until you consider that it came within a whisker of hitting 7,000 as long ago as New Year’s Eve 1999. Footsie’s early years were significantly more rewarding for investors than its late teens and early adulthood have been. Until the bursting of the dot.com bubble in 2000, the index only fell twice, in 1990 and 1994. Since then, it has gone sideways.
The UK’s best-known stock market index was just five years old when I turned up for my first day at Investors’ Chronicle in 1989. We had switched over to Amstrad PCs, but the typewriters were still stacked on top of a cupboard in case of power cuts. In those pre-internet days, news of the market came through on the Extel printer, chuntering away in the corner. It really was a different world.
There won’t have been many days since then that I haven’t at least glanced at the performance of the UK’s top 100 companies. Checking on the ups and downs of the market has been as familiar a routine for me as watching out for Ipswich Town’s scores, and at times just as frustrating.
The changes in the FTSE 100 have been a gauge of how Britain has developed since 1984 when I was still at university and Margaret Thatcher was cranking up the privatisation programme that kindled so many people’s interest in the stock market in the 1980s.
This week I put the FTSE 100 constituents at launch up against the current list to see just how much the corporate landscape has altered since those pre-Big Bang days when the 1987 crash, the dotcom bubble, the financial crisis and many other dramatic market moments all lay in the future.
The immediate impression is of a lost world, half familiar names that used to be part of the national conversation but are now largely forgotten. Hawker Siddeley, Plessey, Trafalgar House, Thorn EMI, Allied Lyons, Rowntree Mackintosh, Hanson and Tarmac are all evocative names from my early career that won’t mean a thing to younger readers. They all appeared in that first FTSE 100 list when the new capitalisation-weighted index replaced the price-based FT30.
There are some striking differences. Forty years ago, many of the biggest and best-known companies were conglomerates, broad-based industrial and commercial empires that had been built up in the 1960s and 1970s by buccaneering financiers like James Hanson, Nigel Broackes and Arnold Weinstock.
But what is equally noticeable is how, despite the different names, the general shape of the FTSE 100 is little changed today. This is most obviously the case in the financial sector where the roll call of banks is almost identical. Barclays, Lloyds, Standard Chartered and NatWest were on the list in 1984 and remain there today. Midland was absorbed by HSBC and the only newcomer is RBS.
There was a long list of other financials 40 years ago, although these were largely insurance companies. L&G and Prudential have stuck around. Commercial Union, Eagle Star, General Accident, Sun Alliance and Guardian Royal Exchange have not. In their place have come a broader slate of fund managers (Schroders, M&G, Pershing Square), wealth advisers and platforms (St James’s Place, Hargreaves Lansdown) and even the London Stock Exchange on which they are all listed.
The list of retailers is just as long as it was. Some of the names are unchanged, as in Sainsbury’s, M&S and Tesco. Others have become historical footnotes – British Home Stores, Burton, Great Universal Stores – to be replaced by new entrants like B&M, Burberry, JD Sports and Next.
In one other important way, the country has not changed a bit. We remain as obsessed by property as we always have been. Soon after I started writing about the stock market, Barratt flirted with extinction, but both it and George Wimpey have survived to tell their tale. The building materials they use have largely fallen into foreign ownership, though, so the likes of Pilkington, Blue Circle, Redland, Tarmac and RMC are no longer among our leading companies. Land Securities is the only commercial property developer to have lasted the course.
The privatisations of the 1980s have left their mark. When the FTSE 100 was launched most utilities were still in public ownership, so Centrica, Severn Trent, SSE, United Utilities and National Grid form a group that didn’t exist back then. They have filled the gap left by a long list of food and household goods firms that have been gobbled up along the way – Cadbury Schweppes, Bass, Distillers, Scottish & Newcastle among them.
One thing that hasn’t really changed at all is the relative absence of technology and telecoms in the UK index and this goes a long way to explaining the underperformance of our domestic market in recent years. Cable & Wireless, Racal and Ferranti have passed away. BT, Vodafone and, curiously, Airtel Africa are their replacements.
Three final sectors look more or less unchanged over 40 years. Pharmaceuticals are still important with Glaxo and Beecham living on as GSK, AstraZeneca surviving the demise of ICI and Smith & Nephew remaining on the list. The tobacco sector is unchanged, with both BAT and Imperial living on as Footsie’s sin stocks. And while Ultramar’s exit to a bid from Lasmo gave me the opportunity as a young journalist to fly to a North Sea oil rig, it left BP and Shell unchallenged in the oil and gas category.
So, there is less change than initially meets the eye. It is not hard to see why the UK’s stock market should be more lowly-rated and perform less well than its higher growth counterpart over the pond. Banks, pharmaceuticals, energy, utilities, food, housebuilders and tobacco. The FTSE 100 is an old friend, but an unexciting one.
Tom Stevenson is an investment director at Fidelity International. The views are his own
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