dispatch
Ian Holloway, known for his eccentricity in British football management, is quite well-known for his unique sayings. One memorable moment was in May 2004 when his Queens Park Rangers team earned promotion to the second tier of English football.
Recently, the FTSE-100 found itself on a bit of a joyful note. The UK’s primary stock index has surged by 11% this year, reaching some impressive milestones recently. After starting at 1,000 on January 3, 1984, it officially hit the 9,000 mark for the first time on July 15 and then climbed to a record 9,138.37 just last Thursday. I mean, isn’t that remarkable?
The ascent from 8,000 to 9,000 took just two years contrasted with the seven years it took to go from 7,000 to 8,000. The performance of the FTSE is among the strongest globally, outpacing other significant indices, including the S&P 500 and Nikkei 225. Interestingly, only the German DAX-40 has been close, but it’s quite rare for the S&P 500 to trail the FTSE.
The FTSE has only seen a drop below U.S. benchmarks two times in recent years, specifically in 2016 and again in 2022, following the global financial crisis 18 years ago. This speaks volumes about the index’s components, mainly reflecting the cyclical nature of sectors like finance, along with energy and mining. Even though the FTSE’s current price-to-revenue ratio just surpasses the long-term average of 15, it doesn’t quite compare to the nearly 30 multiples of the S&P 500.
It’s fascinating how two-thirds of the S&P’s revenue has been driven by capital gains, while about half of the FTSE’s revenue is attributed to dividends. The trend of UK investors leaning towards dividends has almost become a quirky hallmark, often referred to as “coupon clipping.”
The solid performance of the FTSE last week was influenced by various typical market movements. The U.S. has effectively secured a deal with Japan regarding tariffs, which might lead to similar arrangements with the European Union, although results there have been underwhelming thus far. There’s a sizeable defensive stance this year as investors seem to prefer safe havens amid all the uncertainty that seems to arise.
Defensive sectors, especially those linked to government spending, have also gained traction. For example, in 2025, we can look forward to when both U.S. President Donald Trump and Prime Minister Kiel will arrive at Trump International Golf Links in Barmedi, Scotland.
Rolls-Royce has seen its shares increase by 75% this year, bolstered by defense operations, while BAE Systems, the largest defense contractor in the UK, has grown by 59%. These two companies rank sixth and eleventh within the index. Factors driving the FTSE to its recent highs include impressive revenue updates from companies like Reckitt, Howden Joinery, and Lloyd’s Banking Group.
Even BT, often seen as a consistent underperformer, had a strong showing after releasing quarterly results that, to everyone’s surprise, weren’t as disappointing as expected. The pound, on that particular day, experienced a drop—a situation that generally benefits the index since around 80% of its revenues come from abroad, primarily in U.S. dollars and euros.
This point wasn’t fully grasped until the UK voted to leave the EU in June 2016, which led to a rapid 10% decline in the pound against the dollar within hours. The FTSE initially plummeted alongside other UK assets, yet it quickly rebounded, ultimately rising about 2.6% a week later.
This situation highlights a critical yet often overlooked aspect for many everyday British investors: the FTSE often serves more as a barometer for corporate health than for the UK economy itself.
Globalization
To be honest, the FTSE doesn’t reflect the UK economy as a whole. While there are indeed companies that garner significant revenue from the UK, many within the FTSE derive little or none of their income domestically. For instance, companies like Antofagasta—a Chilean copper miner—and Fresnillo, a Mexican silver mining company, are notable examples. Take Mondi, a global packaging company with production sites spread across the world but not in the UK, or Ashtead Group, which earns over 90% of its revenue from the United States.
Even many firms that are traditionally considered British, like BP and BAE Systems, earn most of their revenue abroad. Of the 20 largest companies in the FTSE, only a couple, like Lloyd’s Banking Group and NatWest, generate substantial income from the UK.
It’s a striking contrast to how things once were. When the FTSE launched 41 years ago, it was filled with companies like Scottish & Newcastle, Bass, and Whitbread—firms that primarily earned their profits within the UK. There were also well-known retailers of the time such as Marks & Spencer.
Interestingly, globalization was a concept yet to take off back then. Even the financial services companies were more nationally oriented, primarily dealing with domestic markets.
Over time, sweeping changes occurred, and foreign companies began flocking to the UK’s capital markets for IPOs. The FTSE, with its international footprint, can actually be compared to other indices like the DAX-40, known for deriving a significant portion of its revenue from outside its home country.
However, it is essential not to look at the FTSE as a barometer for the UK’s overall economic health. Yet, there’s a sense of pride when it hits new highs.
– Ian King
