Why is the UK FTSE so low?

Thrugelmir

tebbins said:

Thrugelmir said:

Only two world markets currently rank cheaper in overall value terms. South Korea and Italy. 

What's the source for that?

Watch a presentation during the week. Certainly wrong to view the UK stockmarket as a play on the domestic economy. 

tebbins

Thrugelmir said:

tebbins said:

Thrugelmir said:

Only two world markets currently rank cheaper in overall value terms. South Korea and Italy. 

What's the source for that?

Watch a presentation during the week. Certainly wrong to view the UK stockmarket as a play on the domestic economy. 

Partly agree over any short-term period, but then the FTSE (100/all share/FT30) has been strongly correlated with, and grown at a similar/slightly slower rate than GDP as far back as records go. The UK is a globalised, high trade value economy and naturally, larger corporations will be the part of the economy that does most of the trading.

Thrugelmir

tebbins said:

Thrugelmir said:

tebbins said:

Thrugelmir said:

Only two world markets currently rank cheaper in overall value terms. South Korea and Italy. 

What's the source for that?

Watch a presentation during the week. Certainly wrong to view the UK stockmarket as a play on the domestic economy. 

Partly agree over any short-term period, but then the FTSE (100/all share/FT30) has been strongly correlated with, and grown at a similar/slightly slower rate than GDP as far back as records go. The UK is a globalised, high trade value economy and naturally, larger corporations will be the part of the economy that does most of the trading.

GDP holds no interest to me as a small retail investor in individual companies or thematic trends. 

coastline

It's easy to think the FTSE 100 hasn't gone far since the year 2000 without including the dividends. Around that time of the dot.com boom some of the constituents represented huge percentages of the index. Look at Vodaphone which hit 15% of the FTSE in the year 2000. What's that over a 1,000 points ?

BBC NEWS | Business | The rapid rise of Vodafone

Capped index for trackers | Features | IPE

If you stretch this back to 25yrs or MAX it has unwound a great amount.

Vodafone | VOD - Stock Price | Live Quote | Historical Chart (tradingeconomics.com)

Big names followed since such as BT, the banks , BARC, LLOY etc. Oils again BP, RDSB. A slow grind since has resulted in the average P/E moving into the low teens which has given it a good base in the last year. 
I can remember an entry point into the FTSE of around £1bn which is now nearly £5bn so those outside the top ranks are moving things along.

FTSE All-Share Index Ranking (stockchallenge.co.uk)

How the FTSE 100 has changed over 33 years - Private Investor - Schroders

Prism

Meanwhile the FTSE 250 has been a great place to invest over the last 20 years with returns of over 600% easily beating those of the FTSE 100 and US markets.

Thrugelmir

Prism said:

Meanwhile the FTSE 250 has been a great place to invest over the last 20 years with returns of over 600% easily beating those of the FTSE 100 and US markets.

As was the case with Tesla. Smart money buys the stocks that are heading for a premium listing and by default will bought by the major passive investment houses once promoted. Bank the profit and recycle. 

tebbins

Prism said:

Meanwhile the FTSE 250 has been a great place to invest over the last 20 years with returns of over 600% easily beating those of the FTSE 100 and US markets.

Although again you can work out that most of that has been different rerating and the FTSE 250s habit of growing faster than its market cap, which I think is mostly due to acquisitions, and churn with the FTSE 100.

I hate to get specific with dates again, especially the old classic 1999 but it's very obvious from a trustnet chart that the FTSE 250s run of outperformance started in the .com bubble.
Eyeballing trustnet the 100 has returned 3.7% annualised since then, the 250 8.9%, about a 5% difference.
From 31/12/99 2% of that difference can be explained by rerating (100 pe went from 30.45 to 14.9, 250 pe from 22.67 to 17.21, difference works out as 2% annualised).
Also, whereas the 100 has lagged its market cap by -2.6% annualised since inception in 1984 (3/1/84 index 1,000, mkt cap 100bn, 30/9/21 index 7086.42 mkt cap 1,921bn) the 250 has grown faster than its market cap by 2.8% annualised since inception in 1992 (12/10/92 mkt cap 98bn index 2400, 30/9/31 mkt cap 419bn index 23,031.29).
It is normal that a stock market experiences net dilution as companies raise capital, new constituents IPO etc. Whereas buybacks have reversed this trend for the S&P500, I suspect that the FTSE 250s history of being a hunting ground for acquisitions has been the main driver of it experiencing the same effect.

https://www.google.com/url?sa=t&source=web&rct=j&url=https://research.ftserussell.com/products/downloads/ftse_250_constituent_history.pdf&ved=2ahUKEwii_t6k29TzAhWUSsAKHYKvCLQQFnoECAMQAQ&usg=AOvVaw3kFtIicb-U-bBTLVfHbO3n

I covered this in a fair bit of detail in a previous post

https://forums.moneysavingexpert.com/discussion/comment/78567735/#Comment_78567735

Thrugelmir

tebbins said:

Prism said:

Meanwhile the FTSE 250 has been a great place to invest over the last 20 years with returns of over 600% easily beating those of the FTSE 100 and US markets.

Although again you can work out that most of that has been different rerating and the FTSE 250s habit of growing faster than its market cap, which I think is mostly due to acquisitions, and churn with the FTSE 100.

Four companies are promoted and four relegated every quarter to the FTSE100.  Resulting in a far greater churn rate than the S&P500. 

A recent research paper has raised some questions over entry into the S&P500.  The study found that between 2015 and 2018. Around a third of companies that entered the index violatated at least one of the entry requirements. The subsequent financial performance of those that did not meet the criteria generally was poorer than those that did. To the detriment of the stock price. 

Is Stock Index Membership for Sale?

https://www.nber.org/papers/w29365

Wind back to the GFC in the USA of 2006-2008, and S&P was one the beneficiaries of the banks paying for credit ratings to improve the standing of their mortgage backed security issuance. Money talks as they say. 

numbersrule

The markets were over valued in 1999.  That Is why they crashed.
So comparisons with market peaks do not provide reliable indicators.
The US Dow Jones is much higher now than pre-Covid which shows that it is grossly over valued when compared with the FTSE which is currently a much more realistic 7% lower than the pre-Covid peak.
I have been predicting (along with hoards of others) a crash for a while now and I believe the Dow is moving ever closer to that crash.  When it happens I believe the FTSE will be impacted far less in percentage terms.
Ultimately, and fundamentally, slow but steady is healthy and strong.

tebbins

Thrugelmir said:

tebbins said:

Prism said:

Meanwhile the FTSE 250 has been a great place to invest over the last 20 years with returns of over 600% easily beating those of the FTSE 100 and US markets.

Although again you can work out that most of that has been different rerating and the FTSE 250s habit of growing faster than its market cap, which I think is mostly due to acquisitions, and churn with the FTSE 100.

Four companies are promoted and four relegated every quarter to the FTSE100.  Resulting in a far greater churn rate than the S&P500. 

A recent research paper has raised some questions over entry into the S&P500.  The study found that between 2015 and 2018. Around a third of companies that entered the index violatated at least one of the entry requirements. The subsequent financial performance of those that did not meet the criteria generally was poorer than those that did. To the detriment of the stock price. 

Is Stock Index Membership for Sale?

https://www.nber.org/papers/w29365

Wind back to the GFC in the USA of 2006-2008, and S&P was one the beneficiaries of the banks paying for credit ratings to improve the standing of their mortgage backed security issuance. Money talks as they say. 

On a % of constituents basis perhaps since 27 / 500 < 16 / 100 (https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.spglobal.com/spdji/en/documents/research/research-what-happened-to-the-index-effect.pdf&ved=2ahUKEwi225jC9NTzAhWLEMAKHXwGD_cQFnoECAQQBg&usg=AOvVaw2bkXNbfWgR0eXEXCM7w99n), but I'm not as sure what the difference would be on a market cap weighted basis.
My point is somewhat the opposite, that the FTSE 250 as an index benefits from churn with the 100 mechanically. Speculation about churn pushes up the price of the 250s top members and pushes down the price of the 100s bottom constituents. The mkt cap of the promoted stocks in the 250 (say 4 stocks averaging £5bn each, call it £20bn) will necessarily be greater than that of the FTSE 100s demotees (say 4 stocks averaging £4bn each so £16bn total). Each index is forced to buy and sell at those prices, so for the FTSE 250 say those 4 promotees rallied 10% on pre-promotion speculation, the 100 acquires them at that price, it's as if they've been bought out by an external party and the index pockets just under ~£2bn profit. Say the demotees fell 10% on pre-demotion speculation, the 250 buys them at that discounted price, a further implicit ~£1.8bn profit. 

I know I have seen a source for this but for the love of capitalism I have never been able to find it since.

The other main source of the 250 growing faster than its mkt cap appears to be acquisitions. I've been through the pre-announcement and acquisition share prices and number of shares in issue for Calisen, Talktalk, ACI, Will Hill, Signature Aviation, St Modwens, UDG, Aggreko, Vectura, John Laing and worked out YTD ~ £5.34bn of profit on acquisition. The current market cap is £419bn which includes several companies in bid situations set to add to that total, Morrissons and Meggitt have already been sold into the 100 realising profits of over £2.6bn each. Playtech's offer generates £768m profit, DIGS £227m, Ultra is looking at £970m.
Combined, these generate(d) £12.4bn profit, about a 3% "yield" on the current market cap.

Whether this is sustainable, secular or temporary remains to be seen.

Sources: FTSE Russell factsheets, FTSE 250 historic additions and deletions, proactiveinvestors, HL, Companies House