The most dramatic changes to the FTSE 100 index occur when a sector is hot or falling from grace.
This month marks the 35th year of the FTSE 100’s existence. The index, created in January of 1984, has since become synonymous with cautious investing the UK, with FTSE 100 listed companies expected to provide steady dividends and steady returns over the time. The index itself is often referred to as ‘the blue chip index.’
In its 35 years, a total of 30 companies initially included in the index have survived. And anyone who had invested in them would have been well rewarded, notes Russ Mould, investment director at AJ Bell.
He says: “Shrewd investors who had put £100 into each of the surviving FTSE 100 companies back in 1984 would today be sitting on a pot of £164,977, assuming income had been reinvested.”
However, the performance provided by firms that survived those three decades varies widely. One of the key lessons of the 30 years of the FTSE 100 seems to be the importance of defensive companies with a strong commitment to dividend payments.
Mould adds: “As for the stand-out performers, a lot of them are dividend growth stalwarts – firms that had long spells of consecutives increases in their annual dividend.”
For example, the best performer over that whole time period was British American Tobacco (previously listed under different names).
Over 30 years, the company would have turned £100 into £33,123. While that is partly the result of its share price rise (a whopping 5403% increase over the 30 years), it would not have been possible without the reinvestment of dividend payments (giving a 30-year total return of 33023%).
At the other end of scale was Royal Bank of Scotland. In the 30-year period, it would have turned £100 invested in £290 – hardly the sort of return that an investor would expect after three decades.
Mould notes: “RBS was a classic example of why firms and management teams who focus on ‘growth’ should generally be avoided like the plague – especially if they acquire regularly. Growth is not a strategy, it is what results from strategy.”
Over the 35-year period has been a number of investment fads that has propelled companies in and then out of the index.
For instance, between 1998 and 2000, a technology, media or telecoms (TMT) stock was promoted to the index 25 times, while between 2000 and 2002, some 22 tech stocks then exited the index as the bubble burst. Today, technology makes up just 1% of the index.
Next was the bull-run of the mid-2000s, in which bank shares surged before falling out of favour in the financial crisis. After the crisis, oil and miner companies came into vogue, able to piggyback on China’s continued economic boom. “Twenty oil, mining and oil services names shot into the FTSE 100 between 2007,” says Mould. However, 16 of these slid back out between 2012 and 2016.
FTSE 100: the 30 surviving original constituents
|Company||Share price at start||Share price now1||Value of £100 invested (income reinvested)||2019 forecast dividend yield (%)|
|6||Associated British Foods||72.23||2072||£7,471||2.2|
|7||Legal & General||16.14||230.2||£7,462||7.6|
|11||Royal Dutch Shell*||219.64||2363.5||£6,178||5.9|
|12||Smith & Nephew||64.95||1429||£5,407||2.0|
|20||Edinburgh Investment Trust~||96||609||£2,518||4.4|
|27||Marks & Spencer||107.97||248||£884||7.5|
|30||Royal Bank of Scotland||216.88||216.6||£290||6.0|
Source: Datastream/Sharepad/AJ Bell. 1Data to 2/1/19 * Denotes company that was previously listed under a different name. ~ Denotes company that has fallen into the FTSE 250.