Happy 40th to the Footsie

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Source: Refinitiv, FTSE 100 Price Index from 3.1.84 to 31.10.23.
Past performance is not a reliable indicator of future returns

The UK’s best-known stock market index was just five years old when I turned up for my first day at Investor’s 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 dot.com 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 rollcall 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 forty 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.

The Fidelity Select 50 offers two options for those looking for a low-cost way to track the performance of the UK stock market - the iShares FTSE 100 UCITS ETF which focuses on the FTSE 100 and the Vanguard FTSE 250 UCITS ETF which tracks the more medium and smaller sized companies found in the FTSE 250 index.

Past performance is not a reliable indicator of future returns
Source: Refinitiv from 31.10.18 to 31.10.23 Basis: Bid to bid with income reinvested. Excludes initial charge.