FTSE 100 marks 40 bumpy years

After a bad-tempered start, Britain’s premier stock market index is now a household name, writes Lauren Almeida

Turn the clock back 40 years and you land in a City of London where you could still spot a trader sporting a bowler hat, while Paul McCartney’s Pipes of Peace was number one and Everton were a few months away from winning the FA Cup. This is when the FTSE 100 was born.

Britain’s biggest, most famous stock market index – also known as the “Footsie” – came into being on this day four decades ago.

The index has been home to some of the most successful businesses in history, from oil giants such as BP and Shell to AstraZeneca, the drug maker behind one of the first Covid vaccines.

The FTSE 100 has had its ups and downs; most notably it has failed to keep up with international rivals. But entry into this exclusive club is still a mark of success for British businesses, while falling out is an embarrassment. It is one of the most recognisable financial brands in the world.

Why is it called the FTSE? Forty years ago two major financial institutions were the Financial Times, or “FT”, and the Stock Exchange, or “SE”. Before 1984 the most closely followed index was the FT 30, a basket of companies hand-picked by the pink paper. Its value was calculated hourly. The Stock Exchange then built its “SE 100” index, primarily so that complex financial instruments such as future and option contracts had something to trade against.

James Ashton, who co-wrote a book on the FTSE with its former chief executive Mark Makepeace, says the introduction of the index revolutionised trading in the City.

“The new index traded minute by minute. For City traders it was like moving from black and white television to colour,” he says.

“The FT was not involved in its development and there was a lot of anger behind the scenes.

“It was not until several months later that they reached a gentlemen’s agreement with the stock exchange vested, the FTSE 100 has actually performed better than both Europe and Japan since 2000, chiselling out a 4.1pc annualised return, just ahead of the 3.9pc produced by the European stock market,” says Khalaf.

The top performers include some of London’s largest companies, such as British American Tobacco and the media company Relx.

Michael Field, of analyst Morningstar, says that in the past 20 years the miner Rio Tinto had come out on top.

“While the index itself has delivered more than 600pc over this period, there have been some notable performers that have really brought up this average,” he says. “Since 2000 the top performing stocks in the index have been Rio Tinto, which has delivered more than 2,000pc, or 20 times the original investment. Just behind that we have British American Tobacco with a 1,800pc return.

Market watchers have long argued that the London stock market looks undervalued compared with the US.

“Value” investors may turn to the FTSE 100 for a bargain, as may income investors who seek steady dividends – the index has a forecast yield of 4.2pc for this year.

The easiest way to invest in London’s stock market is to buy an exchangetraded fund (ETF) that follows the FTSE 100 index. ETFs mimic the performance of the market and are typically much cheaper than investing in actively managed funds. Khalaf highlighted the iShares Core FTSE 100 ETF, which charges 0.07pc a year.

Fund managers who specialise in picking British stocks have a shaky record. Only 36pc of these professional investors beat the market over the past decade, according to AJ Bell. These funds also charge higher fees than passive trackers.

For those who seek income, Khalaf suggests the City of London investment trust and the Man GLG Income fund, which charge 0.74pc and 0.9pc respectively and yield 4.9pc and 5.3pc.