FTSE 100 still unpopular

Another_Saver

Linton said:

Another_Saver said:

Linton said:

Another_Saver said:

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.

I do not assume all old companies are dinosaurs. Some may well be well worth investing in as a small part of a large portfolio. 
I didn't say all, I challenged this popular assumption that some/many 100 cos are dinosaurs.
What I mean by stagnation can be demonstrated by a simple statistic - of the largest 15 companies in the FTSE100, 9 were in the FTSE100 when the index first started 36 years ago. Of the remaining 6, 2 were formed out of companies that were in the 1984 Index, 2 are privatisations and only 1 is genuinely "new" - Vodafone. The sixth, BHP, I dont know about. It may have been in the 1984 Index as Billiton.
This is normal. This has always happened everywhere.

Let me set you a challenge - can you suggest say 6 FTS100 companies that could reasonably hope to grow to become globally significant and play a major part in a future recovery of the FTSE100?
Flutter Entertainment (Paddy Power etc)? B&M?  Rightmove? Experian? Compass? Just Eat? St James Place?

...Flutter - I hope not

B&M maybe
Rightmove - don't see why not
Compass - I would prefer to see a return to insourcing catering.
Just Eat - maybe

SJP - there will always be rich people either lazy or unknowledgeable enough to use SJP, so definitely.
But I am indexer. I do not try to pick winning stocks, I buy the haystack to guarantee I own the future winners. No one knows what the future holds. No one expected Monster Beverage Corp or Domino's Pizza Inc to do so well since the Dot Com Bubble. Anyone over the last half century would be forgiven for thinking tobacco had had its day.

As an index investor your holdings in these companies would only be a very small part of your investment, or do you expect them to conceivably overtake HSBC, Glaxo etal at the top of the FTSE100?  Currently they are all examples of niche companies in relatively small markets.

My argument is not against investing in certain FTSE100 companies but rather investing in the Index.  It is in the index where the problems lie.

You've completely missed my point. I only engaged in that exercise because you asked the question and I'm not clear what your point is. What is the problem with the index? The concentration, i.e. the size difference between the top 10 and the rest and how hard it would be or how long it would realistically take for the bottom 50 to grow to overtake the current top 10?

Thrugelmir

Audaxer said:

Linton said:

My argument is not against investing in certain FTSE100 companies but rather investing in the Index.  It is in the index where the problems lie.

As well as a FTSE100 company, do you think it's better investing in an active UK Equity Income fund or IT like CTY rather than a FTSE100 tracker? 

Less of of an income fund these days. Diageo, RELX, Prudential, Unilever and Reckitt aren't companies you'd expect to find in the top 10 holdings. More LT or TS type of stocks.

Oil, banks and insurance will recover in time. 

Linton

Another_Saver said:

Linton said:

Another_Saver said:

Linton said:

Another_Saver said:

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.

I do not assume all old companies are dinosaurs. Some may well be well worth investing in as a small part of a large portfolio. 
I didn't say all, I challenged this popular assumption that some/many 100 cos are dinosaurs.
What I mean by stagnation can be demonstrated by a simple statistic - of the largest 15 companies in the FTSE100, 9 were in the FTSE100 when the index first started 36 years ago. Of the remaining 6, 2 were formed out of companies that were in the 1984 Index, 2 are privatisations and only 1 is genuinely "new" - Vodafone. The sixth, BHP, I dont know about. It may have been in the 1984 Index as Billiton.
This is normal. This has always happened everywhere.

Let me set you a challenge - can you suggest say 6 FTS100 companies that could reasonably hope to grow to become globally significant and play a major part in a future recovery of the FTSE100?
Flutter Entertainment (Paddy Power etc)? B&M?  Rightmove? Experian? Compass? Just Eat? St James Place?

...Flutter - I hope not

B&M maybe
Rightmove - don't see why not
Compass - I would prefer to see a return to insourcing catering.
Just Eat - maybe

SJP - there will always be rich people either lazy or unknowledgeable enough to use SJP, so definitely.
But I am indexer. I do not try to pick winning stocks, I buy the haystack to guarantee I own the future winners. No one knows what the future holds. No one expected Monster Beverage Corp or Domino's Pizza Inc to do so well since the Dot Com Bubble. Anyone over the last half century would be forgiven for thinking tobacco had had its day.

As an index investor your holdings in these companies would only be a very small part of your investment, or do you expect them to conceivably overtake HSBC, Glaxo etal at the top of the FTSE100?  Currently they are all examples of niche companies in relatively small markets.

My argument is not against investing in certain FTSE100 companies but rather investing in the Index.  It is in the index where the problems lie.

You've completely missed my point. I only engaged in that exercise because you asked the question and I'm not clear what your point is. What is the problem with the index? The concentration, i.e. the size difference between the top 10 and the rest and how hard it would be or how long it would realistically take for the bottom 50 to grow to overtake the current top 10?

In my view the main problem with the index is the balance between value shares priced on current financial fundamentals and growth shares where the price is dependent on the market perception of future prospects.  To look at numbers from Morningstar:

FTSE100: 57% value/31% blend/12% growth
Vanguard Global All-cap Index: 34% value/ 34% blend/32 % growth

One particularly telling statistic is that the tech sector is 1% of the FTSE100 vs 19% of the Global All Cap fund.  Contrarian investing has its advocates but perhaps this is going a little far.

ISTM likely that this lack of balance is sufficient to explain the relatively poor performance of the FTSE100 since the Great Crash.  It also supports my view that a FTSE100 tracker should not form a significant part of anyone's portfolio.  I suppose it could be used to tweak the value/growth balance but I cant see any other purpose.

Thrugelmir

Linton said:

Another_Saver said:

Linton said:

Another_Saver said:

Linton said:

Another_Saver said:

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.

I do not assume all old companies are dinosaurs. Some may well be well worth investing in as a small part of a large portfolio. 
I didn't say all, I challenged this popular assumption that some/many 100 cos are dinosaurs.
What I mean by stagnation can be demonstrated by a simple statistic - of the largest 15 companies in the FTSE100, 9 were in the FTSE100 when the index first started 36 years ago. Of the remaining 6, 2 were formed out of companies that were in the 1984 Index, 2 are privatisations and only 1 is genuinely "new" - Vodafone. The sixth, BHP, I dont know about. It may have been in the 1984 Index as Billiton.
This is normal. This has always happened everywhere.

Let me set you a challenge - can you suggest say 6 FTS100 companies that could reasonably hope to grow to become globally significant and play a major part in a future recovery of the FTSE100?
Flutter Entertainment (Paddy Power etc)? B&M?  Rightmove? Experian? Compass? Just Eat? St James Place?

...Flutter - I hope not

B&M maybe
Rightmove - don't see why not
Compass - I would prefer to see a return to insourcing catering.
Just Eat - maybe

SJP - there will always be rich people either lazy or unknowledgeable enough to use SJP, so definitely.
But I am indexer. I do not try to pick winning stocks, I buy the haystack to guarantee I own the future winners. No one knows what the future holds. No one expected Monster Beverage Corp or Domino's Pizza Inc to do so well since the Dot Com Bubble. Anyone over the last half century would be forgiven for thinking tobacco had had its day.

As an index investor your holdings in these companies would only be a very small part of your investment, or do you expect them to conceivably overtake HSBC, Glaxo etal at the top of the FTSE100?  Currently they are all examples of niche companies in relatively small markets.

My argument is not against investing in certain FTSE100 companies but rather investing in the Index.  It is in the index where the problems lie.

You've completely missed my point. I only engaged in that exercise because you asked the question and I'm not clear what your point is. What is the problem with the index? The concentration, i.e. the size difference between the top 10 and the rest and how hard it would be or how long it would realistically take for the bottom 50 to grow to overtake the current top 10?

In my view the main problem with the index is the balance between value shares priced on current financial fundamentals and growth shares where the price is dependent on the market perception of future prospects.  To look at numbers from Morningstar:

FTSE100: 57% value/31% blend/12% growth
Vanguard Global All-cap Index: 34% value/ 34% blend/32 % growth

One particularly telling statistic is that the tech sector is 1% of the FTSE100 vs 19% of the Global All Cap fund.  Contrarian investing has its advocates but perhaps this is going a little far.

Arguably a negative at the moment for the Vanguard Global All-cap Index is the 16% weighting in Consumer Discretionary.  Why hold 6,880 stocks to obtain a 19% tech exposure. A focussed ETF would be a far better option. Investors rarely spend enough time looking under the bonnet. Instead merely look at the headlines (i.e. more recent historic performance). Then wonder why something fails to deliver to expectations. 

Another_Saver

Linton said:

Another_Saver said:

Linton said:

Another_Saver said:

Linton said:

Another_Saver said:

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.

I do not assume all old companies are dinosaurs. Some may well be well worth investing in as a small part of a large portfolio. 
I didn't say all, I challenged this popular assumption that some/many 100 cos are dinosaurs.
What I mean by stagnation can be demonstrated by a simple statistic - of the largest 15 companies in the FTSE100, 9 were in the FTSE100 when the index first started 36 years ago. Of the remaining 6, 2 were formed out of companies that were in the 1984 Index, 2 are privatisations and only 1 is genuinely "new" - Vodafone. The sixth, BHP, I dont know about. It may have been in the 1984 Index as Billiton.
This is normal. This has always happened everywhere.

Let me set you a challenge - can you suggest say 6 FTS100 companies that could reasonably hope to grow to become globally significant and play a major part in a future recovery of the FTSE100?
Flutter Entertainment (Paddy Power etc)? B&M?  Rightmove? Experian? Compass? Just Eat? St James Place?

...Flutter - I hope not

B&M maybe
Rightmove - don't see why not
Compass - I would prefer to see a return to insourcing catering.
Just Eat - maybe

SJP - there will always be rich people either lazy or unknowledgeable enough to use SJP, so definitely.
But I am indexer. I do not try to pick winning stocks, I buy the haystack to guarantee I own the future winners. No one knows what the future holds. No one expected Monster Beverage Corp or Domino's Pizza Inc to do so well since the Dot Com Bubble. Anyone over the last half century would be forgiven for thinking tobacco had had its day.

As an index investor your holdings in these companies would only be a very small part of your investment, or do you expect them to conceivably overtake HSBC, Glaxo etal at the top of the FTSE100?  Currently they are all examples of niche companies in relatively small markets.

My argument is not against investing in certain FTSE100 companies but rather investing in the Index.  It is in the index where the problems lie.

You've completely missed my point. I only engaged in that exercise because you asked the question and I'm not clear what your point is. What is the problem with the index? The concentration, i.e. the size difference between the top 10 and the rest and how hard it would be or how long it would realistically take for the bottom 50 to grow to overtake the current top 10?

In my view the main problem with the index is the balance between value shares priced on current financial fundamentals and growth shares where the price is dependent on the market perception of future prospects.  To look at numbers from Morningstar:

FTSE100: 57% value/31% blend/12% growth
Vanguard Global All-cap Index: 34% value/ 34% blend/32 % growth

One particularly telling statistic is that the tech sector is 1% of the FTSE100 vs 19% of the Global All Cap fund.  Contrarian investing has its advocates but perhaps this is going a little far.

ISTM likely that this lack of balance is sufficient to explain the relatively poor performance of the FTSE100 since the Great Crash.  It also supports my view that a FTSE100 tracker should not form a significant part of anyone's portfolio.  I suppose it could be used to tweak the value/growth balance but I cant see any other purpose.

I don't disagree with Morningstar's suggestion that the UK is more value oriented currently, that's why I'm 1/3 FTSE 100, 1/3 FTSE 250 and 1/3 global.
But I don't subscribe to ideas of growth Vs value and I think such Morningstar content is about as useful to investors as horoscopes.
I've addressed the "no tech" argument in recent-ish posts (see https://www.google.com/url?sa=t&source=web&rct=j&url=https://site.warrington.ufl.edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf&ved=2ahUKEwi28pPFsoLtAhXHUBUIHSa-CwgQFjABegQIAhAB&usg=AOvVaw1Zw_jAH1fkqHZqiNRIosHd, referring to Buffett and Siegel that technological change rarely benefits the owners of capital unless there is a lasting monopoly, which rarely happens, rather tech benefits consumer through higher living standards). I argue this wider economic benefit is better picked up by owning consumer stocks, and other industries that benefit from tech than those who seek to capitalise on it. I've also made the point previously that the concept of technology and innovation is not limited to a category within capital markets - all companies are innovating all the time. Technology is not limited to what the FAANGS, mostly consumer media companies, can sell. Tech is not inherently "better" than non-tech co's - that is the same mindset behind those ridiculous "next job could be in cyber" ads.

Prism

Another_Saver said:

I've addressed the "no tech" argument in recent-ish posts (see https://www.google.com/url?sa=t&source=web&rct=j&url=https://site.warrington.ufl.edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf&ved=2ahUKEwi28pPFsoLtAhXHUBUIHSa-CwgQFjABegQIAhAB&usg=AOvVaw1Zw_jAH1fkqHZqiNRIosHd, referring to Buffett and Siegel that technological change rarely benefits the owners of capital unless there is a lasting monopoly, which rarely happens, rather tech benefits consumer through higher living standards). I argue this wider economic benefit is better picked up by owning consumer stocks, and other industries that benefit from tech than those who seek to capitalise on it. I've also made the point previously that the concept of technology and innovation is not limited to a category within capital markets - all companies are innovating all the time. Technology is not limited to what the FAANGS, mostly consumer media companies, can sell. Tech is not inherently "better" than non-tech co's - that is the same mindset behind those ridiculous "next job could be in cyber" ads.

I find it interesting that the only company in the tech space with a monopoly is the one that was found guilty of being a monopoly in an anti-trust case. The lead that Microsoft have with productivity software like Office and now Teams seems unassailable much of the time.

The rest is more competitive. Google and Facebook share advertising. Amazon and Microsoft share cloud platform and infrastructure. It will be interesting to see who wins the race to AI.. probably Google. These industries are very difficult to break into as the computing power required is vast and established. All of these companies make money when the rest of the industries have to use their technology to run their own stuff.

itwasntme001

Prism said:

Another_Saver said:

I've addressed the "no tech" argument in recent-ish posts (see https://www.google.com/url?sa=t&source=web&rct=j&url=https://site.warrington.ufl.edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf&ved=2ahUKEwi28pPFsoLtAhXHUBUIHSa-CwgQFjABegQIAhAB&usg=AOvVaw1Zw_jAH1fkqHZqiNRIosHd, referring to Buffett and Siegel that technological change rarely benefits the owners of capital unless there is a lasting monopoly, which rarely happens, rather tech benefits consumer through higher living standards). I argue this wider economic benefit is better picked up by owning consumer stocks, and other industries that benefit from tech than those who seek to capitalise on it. I've also made the point previously that the concept of technology and innovation is not limited to a category within capital markets - all companies are innovating all the time. Technology is not limited to what the FAANGS, mostly consumer media companies, can sell. Tech is not inherently "better" than non-tech co's - that is the same mindset behind those ridiculous "next job could be in cyber" ads.

I find it interesting that the only company in the tech space with a monopoly is the one that was found guilty of being a monopoly in an anti-trust case. The lead that Microsoft have with productivity software like Office and now Teams seems unassailable much of the time.

The rest is more competitive. Google and Facebook share advertising. Amazon and Microsoft share cloud platform and infrastructure. It will be interesting to see who wins the race to AI.. probably Google. These industries are very difficult to break into as the computing power required is vast and established. All of these companies make money when the rest of the industries have to use their technology to run their own stuff.

Technology is not just AI or GPUs or cloud platforms.  It is physical machinery that can enhance productivity 10x.  It is bio-engineering enhancing human life quality.  It is a whole spectrum of areas across a wide range of industries.  How much growth has been priced into today's common technology names?  How much juice is there left to be squeezed out of software and cloud computing?

Thrugelmir

Prism said:

Another_Saver said:

I've addressed the "no tech" argument in recent-ish posts (see https://www.google.com/url?sa=t&source=web&rct=j&url=https://site.warrington.ufl.edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf&ved=2ahUKEwi28pPFsoLtAhXHUBUIHSa-CwgQFjABegQIAhAB&usg=AOvVaw1Zw_jAH1fkqHZqiNRIosHd, referring to Buffett and Siegel that technological change rarely benefits the owners of capital unless there is a lasting monopoly, which rarely happens, rather tech benefits consumer through higher living standards). I argue this wider economic benefit is better picked up by owning consumer stocks, and other industries that benefit from tech than those who seek to capitalise on it. I've also made the point previously that the concept of technology and innovation is not limited to a category within capital markets - all companies are innovating all the time. Technology is not limited to what the FAANGS, mostly consumer media companies, can sell. Tech is not inherently "better" than non-tech co's - that is the same mindset behind those ridiculous "next job could be in cyber" ads.

 All of these companies make money when the rest of the industries have to use their technology to run their own stuff.

All these companies use their dominance to squash competition. Buying competitors, buying suppliers, using customer data for their own commercial interests etc. Immunity is far from guaranteed. Another threat will come from the East in time. 

Prism

itwasntme001 said:

Prism said:

Another_Saver said:

I've addressed the "no tech" argument in recent-ish posts (see https://www.google.com/url?sa=t&source=web&rct=j&url=https://site.warrington.ufl.edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf&ved=2ahUKEwi28pPFsoLtAhXHUBUIHSa-CwgQFjABegQIAhAB&usg=AOvVaw1Zw_jAH1fkqHZqiNRIosHd, referring to Buffett and Siegel that technological change rarely benefits the owners of capital unless there is a lasting monopoly, which rarely happens, rather tech benefits consumer through higher living standards). I argue this wider economic benefit is better picked up by owning consumer stocks, and other industries that benefit from tech than those who seek to capitalise on it. I've also made the point previously that the concept of technology and innovation is not limited to a category within capital markets - all companies are innovating all the time. Technology is not limited to what the FAANGS, mostly consumer media companies, can sell. Tech is not inherently "better" than non-tech co's - that is the same mindset behind those ridiculous "next job could be in cyber" ads.

I find it interesting that the only company in the tech space with a monopoly is the one that was found guilty of being a monopoly in an anti-trust case. The lead that Microsoft have with productivity software like Office and now Teams seems unassailable much of the time.

The rest is more competitive. Google and Facebook share advertising. Amazon and Microsoft share cloud platform and infrastructure. It will be interesting to see who wins the race to AI.. probably Google. These industries are very difficult to break into as the computing power required is vast and established. All of these companies make money when the rest of the industries have to use their technology to run their own stuff.

Technology is not just AI or GPUs or cloud platforms.  It is physical machinery that can enhance productivity 10x.  It is bio-engineering enhancing human life quality.  It is a whole spectrum of areas across a wide range of industries.  How much growth has been priced into today's common technology names?  How much juice is there left to be squeezed out of software and cloud computing?

I think it was a fair assumption to make that I was talking about the 'information technology' sector rather than the general term for technology. In that space there is a long way to go with software, AI and the cloud. In a few years time almost everything software based will in the cloud. It would likely be difficult to coax companies out of their existing providers data centre once they have moved in. 

itwasntme001

Prism said:

itwasntme001 said:

Prism said:

Another_Saver said:

I've addressed the "no tech" argument in recent-ish posts (see https://www.google.com/url?sa=t&source=web&rct=j&url=https://site.warrington.ufl.edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf&ved=2ahUKEwi28pPFsoLtAhXHUBUIHSa-CwgQFjABegQIAhAB&usg=AOvVaw1Zw_jAH1fkqHZqiNRIosHd, referring to Buffett and Siegel that technological change rarely benefits the owners of capital unless there is a lasting monopoly, which rarely happens, rather tech benefits consumer through higher living standards). I argue this wider economic benefit is better picked up by owning consumer stocks, and other industries that benefit from tech than those who seek to capitalise on it. I've also made the point previously that the concept of technology and innovation is not limited to a category within capital markets - all companies are innovating all the time. Technology is not limited to what the FAANGS, mostly consumer media companies, can sell. Tech is not inherently "better" than non-tech co's - that is the same mindset behind those ridiculous "next job could be in cyber" ads.

I find it interesting that the only company in the tech space with a monopoly is the one that was found guilty of being a monopoly in an anti-trust case. The lead that Microsoft have with productivity software like Office and now Teams seems unassailable much of the time.

The rest is more competitive. Google and Facebook share advertising. Amazon and Microsoft share cloud platform and infrastructure. It will be interesting to see who wins the race to AI.. probably Google. These industries are very difficult to break into as the computing power required is vast and established. All of these companies make money when the rest of the industries have to use their technology to run their own stuff.

Technology is not just AI or GPUs or cloud platforms.  It is physical machinery that can enhance productivity 10x.  It is bio-engineering enhancing human life quality.  It is a whole spectrum of areas across a wide range of industries.  How much growth has been priced into today's common technology names?  How much juice is there left to be squeezed out of software and cloud computing?

I think it was a fair assumption to make that I was talking about the 'information technology' sector rather than the general term for technology. In that space there is a long way to go with software, AI and the cloud. In a few years time almost everything software based will in the cloud. It would likely be difficult to coax companies out of their existing providers data centre once they have moved in. 

But you were replying to someone debating about technology across different industries, not just in IT.  I agree that there has and will continue to be a movement towards centralized computing infrastructure.  But what is the point you are trying to make?  Everyone knows this.  Stocks are pricing in future expectations of earnings.  How much of this is already priced in?