Let’s take it back to where the FTSE 100 started, review what’s happened, and I’ll offer my take on whether the Footsie’s past or future prospects are better.
Some fun-ish facts
- The FTSE 100 launched on 3 January 1984, replacing the FT-30.
- A small number of firms on the index today make up around half of its current market capitalization. These include Shell, Unilever, BP, Rio Tinto, GSK, and Reckitt Benckiser, which were all present back in 1984.
- Eight of the forecast 12 biggest contributors to the FTSE 100’s 2023 aggregate pre-tax profit were also present back in 1984. These are BP, Shell, Unilever, British American Tobacco, GSK, RELX, Lloyds, and Barclays.
- The FTSE 100’s benchmark has risen from 1,000p, back in 1984, to 7,674p, as I write on 3 January. This is a capital return of 667% and equates to a compound annual return of just over 5%.
Looking back
Reviewing historical performance data, I reckon it’s fair to say that the FTSE 100 hasn’t performed well compared to its US and European counterparts. The majority of its growth came in the first two decades. Another issue for me is its reliance on a small number of mammoth firms, some of whom I mentioned earlier.
There have been challenges for the Footsie (and global markets) to navigate. A few examples are the tech crash, the financial crash of 2008, and more recently the coronavirus pandemic.
Since the turn of the 21st century, the UK’s premier index has struggled. It has risen just 0.4% annually compared to the S&P 500, which has experienced a 6.1% yearly increase.
However, I should mention that dividends are not included in the FTSE 100 index. So while it’s a good tool to measure the returns and day-to-day movements of UK stocks, it’s not ideal to calculate the long-term returns accrued by investors.
Adding dividends into the equation, returns for the Footsie this century look rosier, at 4.1%. This is still lower than European and US markets, which have returned 5.7% and 8.1%.
What’s next?
Laith Khalaf, head of investment analysis at AJ Bell, comments: “The UK stock market finds itself in a quagmire of existential angst. The headline index has made almost no progress since the start of the century, and in the last decade, the Footsie has been totally eclipsed by the US stock market, which is winning company listings and financial flows”.
I find it hard to argue the FTSE 100’s best years are ahead of it. That doesn’t mean it isn’t littered with quality stocks. I hold positions in multiple Footsie stocks and have made money. I’ll also continue to hunt for UK stocks as well as US and European stocks to boost my wealth.
Personally, I look for two core traits when investing. These include high-growth potential shares and dividend-paying stocks that can boost my passive income stream. Furthermore, I’m an advocate of diversification. I tend not to buy too many stocks in one sector. In fact, I often limit myself to a maximum of two to three, depending on the industry in question.
I can’t help but think that the make-up of its current incumbents – especially its reliance on a few behemoths – as well as geopolitical and macroeconomic instability, may hinder, rather than help the FTSE 100 moving forward.
