FTSE 100 celebrates 40th birthday – but is it over the hill? - IFA Magazine

The FTSE 100 reaches a significant milestone as it commemorates its 40th anniversary this week, specifically on 3 January. Though, when compared to similar indices in Europe and the US, the returns over the past 40 years for FTSE 100 appear to be lower. Moreover, the situation appears even grimmer when observing the data from the turn of the century. However, this analysis doesn't look at the entire picture since the FTSE 100's struggles in the 21st century were mainly due to currency fluctuations and omitting dividends. If you're interested in investing in FTSE 100, there are some approaches to consider.

AJ Bell's head of investment analysis, Laith Khalaf, provides his input:

As the FTSE 100 marks its 40th anniversary, the UK stock market is facing a crisis of identity. The main index has barely moved since the beginning of the millennium, and over the past decade, American stocks have taken over as the leader in company listings and financial flows. In recent years, investors in the UK have been selling off their domestic equity funds and opting for more global options. This shift may be due in part to the stronger performance of overseas equities.

The percentage of UK stocks in the developed global stock market has decreased from 10% in the past decade to only 4% now. This amount is smaller than that of Apple or Microsoft individually. This means that fund managers are able to ignore the UK without much risk of deviating from their benchmark. In fact, ignoring the UK may result in improved performance in recent times. However, if more people continue to divest from the UK and fewer invest in it, its global relevance may decrease even further, causing a negative cycle.

A closer look at how the FTSE 100 has been doing Today we will be taking a more in-depth analysis of the performance of the FTSE 100. We'll be examining how it has been performing in recent times and what factors have been influencing its movements. The FTSE 100, which is comprised of the top 100 companies listed on the London Stock Exchange, has been experiencing some fluctuation in its performance. Its movements can be traced back to various factors such as economic policies, global events, and industry news, among others. Despite this, the FTSE 100 has generally been performing well, with some highs and lows along the way. Investors have been keeping a close eye on its movements and many have been making informed decisions accordingly. As we delve deeper into the details of the FTSE 100's performance, we hope to gain a better understanding of what drives its movements and how investors can navigate it more effectively. Stay tuned!

When we look at the past performance of the FTSE 100, we can see that it may not be as strong as it once was. The average return of 5.2% since it was created in 1983 is lower than similar indices in Europe and the US, and growth has slowed significantly since the first 20 years of its existence. While the financial crisis and tech crash of the 2000s affected all markets, the FTSE 100 has struggled to recover since then while other indices have made significant gains. Since 2000, the average yearly rise of the FTSE 100 has been just 0.4%, compared to 6.1% for the S&P 500.

Rewritten: The Morningstar price has shown a return in GBP until 26 December 2023.

The 21st century has not been kind to the Footsie, as it has experienced a significant decline.

However, there is a misleading trend affecting the UK's stock market in the 21st century, which is mainly due to the devaluation of the pound and the omission of dividends from the FTSE 100 index's headline. Though the FTSE 100 provides a useful indication of the UK's daily stock movements, it inadequately illustrates investors' long-term returns since it neglects to include dividends given by its members. This is a common feature among global market indices. Dividends are critical in providing returns to investors and are especially relevant for Footsie due to its member companies' strong dividend history.

When taking into account dividends, the FTSE 100's returns appear to be stronger in absolute terms during this century, but the UK market still trails behind the US and European markets. With dividends reinvested, the FTSE 100 has produced an average annual return of 4.1% since the beginning of the century. In comparison, European and US stock market indexes have returned 5.7% and 8.1%, respectively. It's worth noting that total return information for the FTSE 100 is only obtainable from 1986, a couple of years after the price index was introduced.

Original: "Morningstar total return in GBP to 26 December 2023" Alternative: Morningstar's complete income value in British pounds up to December 26th, 2023.

The FTSE 100 is showing positive signs, especially when considering the impact of currency fluctuations. Over the years, many important currencies including the euro and the dollar have been stronger than the British pound. The weakening of the pound has been beneficial for the FTSE 100 companies because of their global revenue. However, the effect on the returns of foreign indices has been even greater due to their higher dependence on dollars and euros.

The FTSE 100 has performed well in comparison to Europe and Japan since 2000, with a 4.1% annual return (when dividends are reinvested). The European stock market has produced a slightly lower return of 3.9%. However, this measurement doesn't fully reflect the returns UK investors have received from international indices due to weaker sterling boosting returns. When looking at global stock market returns, the FTSE 100 still falls behind with an annual return of 5.6%, with the US stock market being the outlier with a return of 7.1% per year since 2000. It's important to note that the FTSE's lower performance compared to the S&P 500 is likely due to American exceptionalism rather than UK underperformance.

Original: "The Morningstar total return in local currency to 26 December 2023 is an important indicator of a fund's performance. This metric takes into account not just capital gains but also dividends and interest earned on investments. Investors should keep an eye on this figure as it provides an accurate measure of the total return on their investment." Rewritten: "It's crucial for investors to monitor the Morningstar total return until 26 December 2023, which evaluates a fund's performance. This assessment doesn't solely focus on capital gains, it also considers dividends and interest generated from the investments. This indicator is an accurate measurement of the overall profit that investors receive from their investment."

The FTSE 100 has not been performing as well as other markets in recent years, even when taking into account currency and dividends. This could be due to the increasing popularity of growth investing and indexing, which has not been advantageous for traditional UK industries like banking, insurance, and mining. Even though the UK stock market is undervalued compared to the US market, this has been the case for decades. Investors who go against the grain and buy UK stocks will need to be patient, as trends in investment flows have not shown any signs of changing. However, the positive news is that UK investors have the potential to earn a 4.2% yield in 2024, which can help offset any waiting periods for a market resurgence.

Investing in the FTSE 100 can seem daunting, but with some know-how, it can be a smart financial move. The FTSE 100, which stands for Financial Times Stock Exchange 100 Index, is a collection of the top-performing companies listed on the London Stock Exchange. To invest in the FTSE 100, it is important to educate yourself on the process and do your research. One way to invest in the FTSE 100 is through exchange-traded funds (ETFs), which are investment funds that trade like stocks on an exchange. ETFs can provide diversification in your investment portfolio at a lower cost than investing in individual stocks. Another option is to invest directly in individual companies listed on the FTSE 100. It is important to research the companies thoroughly and consider factors such as their financial performance, industry trends, and potential for growth. Before investing in the FTSE 100, it is important to understand the risks involved, such as market volatility and potential losses. It is recommended to consult with a financial advisor to determine if investing in the FTSE 100 aligns with your investment goals and risk tolerance.

To invest in the FTSE 100, the easiest way is to purchase a FTSE 100 tracker like iShares Core FTSE 100 ETF. However, active funds invested in the UK don't necessarily limit themselves to the largest companies in the FTSE 100. Some managers prefer investing in midcap companies lower on the cap scale for potentially greater growth. This strategy has proven successful, as midcap companies in the FTSE 250 index had an annualized return of 7.7% since 2000, compared to 4.1% for the FTSE 100 with dividends reinvested (source: Morningstar). For diversified exposure to UK stocks, investors can consider Fidelity Special Values or Liontrust UK Growth. Those seeking income can look into City of London investment trust, which currently has a yield of 4.9%, or Man GLG Income Professional with a yield of 5.6%.