This year FTSE 100 has broken records left right and centre. The index smashed through the 7,000 barrier, set numerous record highs and ended the first quarter of this year as its best level in the last two years. It all sounds quite impressive. But when compared with the rest of the world, London’s blue chip benchmark has lagged worryingly behind.
This year FTSE 100 has broken records left right and centre.
The index smashed through the 7,000 barrier, set numerous record highs and ended the first quarter of this year as its best level in the last two years.
It all sounds quite impressive. But when compared with the rest of the world, London’s blue chip benchmark has lagged worryingly behind.
In the US, a continually strong dollar and low interest rates have seen the Dow Jones Industrial Average rise to 17,881 from 16,457, an increase of 7.9% for the 12 months to March.
The rise in that index, which consists of the top 30 US companies, compares to Footsie’s 2.5% rise over the same period.
Both pale in comparison to the German DAX, however, which has risen by 20.1% to 11,966 despite, or perhaps because of, concerns over a Greek defection from the Eurozone and a plummeting euro.
A plummeting euro has meant European exporters have been at a reduced price, while the uncertainty in the Eurozone has meant investors have been looking for less risky investment.
Coupled together has led to the persistant rise of the DAX compared to the others.
Going farther back makes for even grimmer reading. In the last 10 years, the Dow has improved 76% while the DAX has risen by an almost outrageous 181%. FTSE 100 is up just 36%.
Oliver Wallin of Octopus Investments said he is not surprised the FTSE 100 has underperformed the other two.
The investment director said: “The obvious thing to look at with the FTSE 100 is that it is highly geared to mining and oil companies compared to the Dow and Dax.
“The FTSE has almost double the exposure of the Dow, something like 14% to 7%, while the DAX has very little if any.”
Over the past 12 months, the Brent Crude Oil price has dropped to US$55, a barrel a near 50% fall, while the gold spot price has fallen by nearly 8% to US$1,183.
Both have a big impact on the resource-heavy UK share index, according to Garry White, at City broker Charles Stanley.
He said: “Footsie is too based on energy and oil. There are no bigger contributors [to the index] than BP and Shell apart from maybe HSBCwhich has had its own issues.”
BP and Shell combined account for more than 12% of the index and a plummeting oil price has sent their share prices tumbling by 9.7% and 13.7% respectively.
The top seven companies, Royal Dutch Shell (LON:RDSB), HSBC(LON:HSBA), BP (LON:BP), GlaxoSmithKline (LON:GSK), Vodafone(LON:VOD), AstraZeneca (LON:AZN) and British American Tobacco(LON:BATS), account for almost 35% of the index.
There are similar concentrations of power overseas. In the US, the Dow’s six main companies account for nearly 34% and the German DAX’s top four are 36% of the index, but their main constituents are less reliant on commodities leaving them relatively unaffected by recent changes in prices.
Charles Stanley’s White points out the FTSE100 is not really a proxy for UK PLC with 85% of its earnings coming from abroad.
While the DAX and Dow were (to an extent) proportional representations of the US and German economies, the FTSE 100 is far more global and less likely to benefit as much from shifts in the UK economy.
Piling on the misery for the FTSE 100, data shows even the FTSE 250, an index of the next 250 biggest companies outside the top 100 and far more representative of the UK overall, has left its bigger brother trailing.
The mid cap index has risen 4.8% over the past year, almost twice Footsie’s gains and an astonishing 240% over the last decade.
Octopus’ Wallin said: “The FTSE 100 is no longer the best place to look to for investment in the UK economy. We recommend investors move away from FTSE 100 and look at companies in the FTSE 250.”
SOURCE: Jonathan Jones – proactiveinvestors.co.uk
