January 2019 marks the 35th anniversary of the FTSE 100, the hallmark blue-chip index for the London Stock Exchange.
Since its foundation in 1984 as part of a joint venture between the Financial Times and London Stock Exchange Group PLC (LON:LSE), only 30 of the original 100 firms have remained intact over the years, with some providing healthy returns for any astute investors who backed them at the outset.
Certain sectors captured investors' imaginations
Russ Mould, investment director at AJ Bell, says that if an investor had put £100 into each of the surviving FTSE 100 companies back in 1984, they would today be looking at a pot worth around £165,000 (assuming the income had been reinvested).
However, that doesn’t mean all those 30 firms would have been great choices.
“[Royal Bank of Scotland] 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”, Mould says, adding that over the index’s history stocks in certain sectors or industries have served to capture investor’s imaginations, although the outcomes have not always been the best.
A key example of this was technology, media, and telecoms stocks around the turn of the millennium.
Between 1998 and 2000, stocks covering these three areas were promoted to the index 25 times, however, 22 went straight out again after the ‘.com’ bubble burst between 2000 and 2002, and now the FTSE 100 only gets 1% of its market cap from technology stocks.
There was a similar rush to the top between 2003 and 2007, spearheaded by financial stocks until the 2008 crash, with the recovery led by miners and oilers off the back of China’s growth prospects and its relative immunity to the global downturn over the period.
Between 2007 and 2012, a total of 20 oil, mining, and oil services stocks were moved into the FTSE 100 before 16 dropped out again between 2012 and 2016.
For those who have weathered the storms of history, Mould says the stand-out performers have often been “dividend growth stalwarts”, firms that had long spells of consecutives increases in their annual dividend.
Mould adds that these trends show how stock markets are “get-rich-slow” mechanisms when used properly and when they work well.
“If you are picking individual stocks, focus on their competitive position, financial strength, management acumen and strategy. Dividend reinvestment is incredibly powerful because of compounding and how the maths of this builds up your savings pot over time.”
However, he warns that if a stock has a high dividend yield, you must be careful that it does not become a millstone around the company’s neck, as a cut to the dividend can usually send the share price tumbling after it.
Survivors and thrivers
In terms of the numbers, the best performing survivor stock in the FTSE 100 is British American Tobacco PLC (LON:BATS), which would have provided a return of £33,123 on an initial £100 investment in 1984.
Some of those 30 have even fallen out of the index altogether. Edinburgh Investment Trust PLC (LON:EDIN), Elementis PLC (LON:ELM), Rank Group PLC (LON:RNK), and Hammerson PLC (LON:HMSO) have all dropped into the lower FTSE 250 index over the years.
The dearly departed
Aside from those demoted from the FTSE 100, some of the original firms have succumbed to market forces in the form of buyouts, mergers, or by simply going bust.
Recent examples include department store chains House of Fraser and British Home Stores, as well as institutional chocolatier Cadbury’s, which is now owned by US conglomerate Mondelez International (NASDAQ:MDLZ).
A little further back in the depths of the great recession, another original FTSE 100 firm, MFI Furniture, was swept into administration.