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Unhappy birthday for FTSE 100 as it turns 40

Returns on UK stocks have proved especially disappointing over the past two decades

An electronic ticker tape showing the FTSE 100 inside the London Stock Exchange. The FTSE 100 is celebrating its 40th anniversary this year. Photograph: Nicholas T Ansell/PA Wire

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Proinsias O'Mahony
Tue Jan 9 2024 - 06:00

The FTSE 100 celebrated its 40th birthday last week, although investors weren’t popping open the champagne corks. Last year wasn’t a great one for the index.

While American indices soared 25 per cent, the FTSE was a global laggard, gaining just 3.8 per cent. UK investors have gotten used to this underperformance.

UK stocks have underperformed their counterparts in other developed markets over the past 40 years, with returns proving especially disappointing over the past two decades. The index is only 11 per cent higher than at the end of 1999.

The picture is less glum if one includes dividends, although total annualised returns of 4.1 per cent nevertheless represent scant return for 23 years of equity market risk. The UK now accounts for just 4 per cent of the global developed stock market, notes AJ Bell analyst Laith Khalaf, down from 10 per cent just over a decade ago.

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The paucity of UK tech stocks means the FTSE resembles an old-economy index dominated by oil, mining and banking stocks. Sector composition doesn’t tell the entire story; the UK trades at a discount to other developed markets even if one adjusts for its sector make-up.

Indeed, bulls point to the apparent cheapness of the UK market as one reason why coming years may be better for investors. Still, this valuation gap is one reason why companies are increasingly looking beyond the UK.

British chipmaker Arm last year snubbed the UK market, opting to instead list on the more liquid and highly-valued Nasdaq. CRH has moved its main listing to the US, while Smurfit Kappa and Paddy Power owner Flutter are expected to do likewise. Little wonder, then, that UK investor sentiment remains decidedly muted.

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