FTSE 100 still unpopular

itwasntme001

dunstonh said:

Another_Saver said:

I'm at the point now that I just want to refer people to my earlier posts on UK equity rather than repeat myself every time...
I still expect, whether you measure from 31/12/19-31/12/29, or from March, or from now, that over the next decade or so the UK will outperform the global market. The forum has been around longer than that so hopefully will still around then for me to gloat. Sooner or later sentiment will drift the other way, the US will have a period of relative undervaluation, sensible value investors will buy in while the (EM?, Eastern Europe, Asia Pacific, Africa?, UK?) Hype train pockets money from the growth investors.

Every sector/region/country has good years and bad years.    Yes, at some point, UK equity will be the best area for a year.  However, UK equity and UK large cap are two different things as far as measures go.    Between 2009 and 2019, UK equity was top third 8 times on a discrete annual basis.     And over a 10 years period cumulatively, it was second to US. (248.01% US, 129.63% UK, 128.4% Asia/Japan, 115% Europe, 107.2% Index Linked Gilts... skipping some to worst equity sector which was emerging markets at 67.76%).  - source Financial Express.
Diversification is key.   The FTSE100 is niche and focused and not representative of the UK economy.   It is important not to use the term FTSE100 and UK equity to suggest they are the same thing. FTSE all share would be a fairer match.

I believe the FTSE All Share is comprised of 80% FTSE100 (which itself has the top 10 constituents making up 50% of the index).  So FTSE All Share also does not look like pure UK equity but I suppose a bit closer than the FTSE100 is.

Another_Saver

dunstonh said:

Another_Saver said:

I'm at the point now that I just want to refer people to my earlier posts on UK equity rather than repeat myself every time...
I still expect, whether you measure from 31/12/19-31/12/29, or from March, or from now, that over the next decade or so the UK will outperform the global market. The forum has been around longer than that so hopefully will still around then for me to gloat. Sooner or later sentiment will drift the other way, the US will have a period of relative undervaluation, sensible value investors will buy in while the (EM?, Eastern Europe, Asia Pacific, Africa?, UK?) Hype train pockets money from the growth investors.

Every sector/region/country has good years and bad years.    Yes, at some point, UK equity will be the best area for a year.  However, UK equity and UK large cap are two different things as far as measures go.    Between 2009 and 2019, UK equity was top third 8 times on a discrete annual basis.     And over a 10 years period cumulatively, it was second to US. (248.01% US, 129.63% UK, 128.4% Asia/Japan, 115% Europe, 107.2% Index Linked Gilts... skipping some to worst equity sector which was emerging markets at 67.76%).  - source Financial Express.
Diversification is key.   The FTSE100 is niche and focused and not representative of the UK economy.   It is important not to use the term FTSE100 and UK equity to suggest they are the same thing. FTSE all share would be a fairer match.

All valid points but the main UK equity indices all behave and perform very similarly. 1985-2000 the 250 and 100 were neck and neck, and the 250's outperformance since the turn of the Millennium is explained by net acquisitions. I have read some evidence in Gervais Williams slow finance about certain retrospectively constructed smaller indices having much greater longer term performance than the general market, more so with value and yield tilts. But I'm sceptical that this is sustainable into the future - the market is simply more efficient these days.
I do agree about observations made about how concentrated the UK market is with the top 10 taking up 40% of the index (almost the same whether you look at the 100, 350 or all share), a much steeper dropping off in terms of weight after that and then a long flat tail. Whereas take the 250 and the 1st stock's weight is a lil over 1%, #100 about 1/3%, and #250 about 0.1%. one counterpoint I can offer is that many co's in the 100 index are not really one co but M&As of several (the banks, the pension and insurance co's, the last two oil and gas co's, utilities, the miners) so you could argue these stocks are akin to investment trusts containing the previously separately listed subsidiaries. You can look at the history of any co at the top of the 100 index and much of its size came from M&A, it is a consolidation or conglomeration and they are perhaps more easily separable.
Whereas in the US, perhaps the most different market to the UK right now, the FAANGS arguably grew organically to their current size and, at least pre-covid, the us market was much less concentrated, the curve from the top to the bottom was flatter, in other words, than the UKs.
By curve I mean if you made a chart with market cap on the y axis and index rank.on the x axis, you would see a steeper curve for more concentrated markets and a flatter curve for less concentrated markets.

Most of the FTSE 100 now really isn't from the industrial revolution. In 1900 half the UK market was rail and in 1800 it was all financials (https://globalfinancialdata.com/finance-and-transports-in-britain-in-the-1800s-from-countercyclical-to-benchmark, https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/csri-summary-edition-credit-suisse-global-investment-returns-yearbook-2019.pdf&ved=2ahUKEwjcu_PcmYDtAhVWQhUIHbJlDP0QFjAAegQIARAB&usg=AOvVaw17kbMbWvVsop8m66Pc5paY)
Pre 1900 data appears to more debatable, for example (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.959.5232&rep=rep1&type=pdf) suggests in 1825 half the UK market cap was canals.

I have seen a similar graphic for the US, with consumer, tech and healthcare appearing as the new and growing sectors. Consumer and healthcare I don't doubt will remain a part of the market. I don't think tech has peaked yet, but it has been the sector that drove the Dot Com and this current bubble. Rail's bubble peaked in 1848 and even so it was still hugely popular and dominant in 1900 so perhaps there's a while to go before we see the companies today we call "high tech" as "normal" if rail is to be seen as a precedent of how capitalisation of new technologies unfold.

Financials and consumer will always be relevant so I have no concerns about those sectors.

And check out the latest weights in the all share, 21.9% financials of which 5.5% is investment trust, so only really 16.4% financials, of which 6% is banks, 4.2% is the investment industry, leaving 6.2% for insurers and financial services. 27.3% consumer, 12.7% Industrials around half of which is services, 11.5% healthcare of which 10.2% is big pharma and the rest equipment and services, 9% materials (7% miners, 2% packaging), and 6.6% energy. To me that's far more diverse than the US's nearly 40% weighting to big tech, followed by an 8% weighting to retail.
Sources: Vanguard and HL, FTSE all share and us equity index funds 

Apodemus

Another_saver, that is all very interesting and I think we often get too tied up in the current data, without proper analysis of the past.  I wonder, though, how we could/should factor in changing proportions of "market" to economy? 

At any particular time only a proportion of the country's economic capital is listed on any market.  And not all of the remainder is even limited company capital.  These proportions will have shifted around over the past couple of hundred years.  Many companies will have their capital traded on overseas markets as part of holding companies that have bought UK assets and we have the (perhaps growing) issue of good companies being removed from the market by private equity funds. 

It sometimes leaves me feeling that the "market" that is open to us mere mortals is far removed from the reality of the wider UK economy.

Linton

In my view the FTSE suffers from a major systemic failure, its poor recent performance is not something from which it will recover as part of the normal rises and falls in the markets.

This major systemic failure is that there is a complete absence of companies that could replace the dinosaurs and become world leading multinationals. The potential world class companies are bought out long before they could reach that stage by entities that don’t trade on the LSE.

But all is not gloom and doom. Whilst the FTSE100 stagnates FTSE250 investors benefit as buyouts are generally made at well above the market price. And the removal of companies near the top of the index gives room for more potential winners to enter at the bottom.

Alexland

Apodemus said:

It sometimes leaves me feeling that the "market" that is open to us mere mortals is far removed from the reality of the wider UK economy.

True but on the other hand aren't you glad that your S&S investments don't give you access to the small coffee shops, children's play barns, wedding planners, etc that are struggling so badly at the moment?

Thrugelmir

Apodemus said:

It sometimes leaves me feeling that the "market" that is open to us mere mortals is far removed from the reality of the wider UK economy.

Applies to all the developed markets. Number of listed companies is progressively decreasing. This is reflected in the US in Trump's angst against China. Not just a trade war but Chinese ownership and investment by a very small number of funds. Who are effectively puppets of the State. 

coastline

No doubt FTSE has underperformed in recent years but it wasn't until 2013 onwards in general. Set the chart to 10 years to see the effects. Set from January 1986 and Jan 1990 and things look healthy.
https://www2.trustnet.com/Tools/Charting.aspx?typeCode=NM990100,NASX,NUKX
https://i.imgur.com/cILTsWQ.png
https://pbs.twimg.com/media/Ega6qmGXgAArfoQ?format=jpg&name=small
All changed during the dot.com boom where P/E values were well out of line. Banks ,supermarkets and telecoms traded over 20 times. Vodaphone was nearly 20% of the index at one point.
Big guns have gone ex growth in some cases and this has led to realistic valuations. A clear result with Brexit might add a few points. Who knows. ?
https://www.ajbell.co.uk/dividend-dashboard

Another_Saver

Linton said:

In my view the FTSE suffers from a major systemic failure, its poor recent performance is not something from which it will recover as part of the normal rises and falls in the markets.

This major systemic failure is that there is a complete absence of companies that could replace the dinosaurs and become world leading multinationals. The potential world class companies are bought out long before they could reach that stage by entities that don’t trade on the LSE.

But all is not gloom and doom. Whilst the FTSE100 stagnates FTSE250 investors benefit as buyouts are generally made at well above the market price. And the removal of companies near the top of the index gives room for more potential winners to enter at the bottom.

Why do we assume old co's are dinosaurs?
Survivorship is the best indicator of survivorship.
The 100 is not stagnating, as I said it behaves very, very similarly to the 250.

Another_Saver

Alexland said:

Apodemus said:

It sometimes leaves me feeling that the "market" that is open to us mere mortals is far removed from the reality of the wider UK economy.

True but on the other hand aren't you glad that your S&S investments don't give you access to the small coffee shops, children's play barns, wedding planners, etc that are struggling so badly at the moment?

I think for most sufficiently large and developed markets, and certainly at a global level, you could say that the market is far reaching enough as to represent essentially the whole economy. Capital markets are only useful to businesses that need capital - many professional services and the creative industries don't, they are basically labour. With a coffee shop you have utilities, ingredients, construction materials, payments processing... So there's a fair bit going on.

Another_Saver

coastline said:

No doubt FTSE has underperformed in recent years but it wasn't until 2013 onwards in general. Set the chart to 10 years to see the effects. Set from January 1986 and Jan 1990 and things look healthy.
https://www2.trustnet.com/Tools/Charting.aspx?typeCode=NM990100,NASX,NUKX
https://i.imgur.com/cILTsWQ.png
https://pbs.twimg.com/media/Ega6qmGXgAArfoQ?format=jpg&name=small
All changed during the dot.com boom where P/E values were well out of line. Banks ,supermarkets and telecoms traded over 20 times. Vodaphone was nearly 20% of the index at one point.
Big guns have gone ex growth in some cases and this has led to realistic valuations. A clear result with Brexit might add a few points. Who knows. ?
https://www.ajbell.co.uk/dividend-dashboard

If you take a longer term view to me it looks like the divergence between the UK and global markets started around the Brexit referendum. You see a very slight pulling away in 2013, you could say this was the start of it but it's very smallthen. In 2014-15 you see the falling price of oil and global slowdown fears widening the gap as the UK does have (and back then did have a bigger) global cyclicals weighting, but when it really kicks off is after 2016.