The Footsie has been on something of a tear, recently.
Having danced around the 7,600 level for most of the past year, it’s rocketed upwards since the New Year, and on 3 February closed at 7,902.
Predictably, given the circumstances, there was a bit of media hoopla — including from some who should really have known better.
The circumstances in question? 7,902 was an all-time high, a 36-year record in a series of trading days that stretches right back to 3 January 1984, when the FTSE 100 was first created.
Hold the fireworks
So, should we all be celebrating? Are the good times set to roll?
Er, no. Friday’s record close was quite predictable: the Footsie has risen inexorably since its creation, helped along by inflation and rising corporate earnings, and was bound to hit 7,902 sooner or later one day.
That the day in question was last Friday is nothing really remarkable.
Worse, in real terms, the apparent risen in recent times isn’t really much of a rise at all. The pound is down 11% over the past year, and it had fallen 2.75% in the three days prior to last Friday.
So given that the London-listed shares are (or course) quoted in pounds, yet the Footsie is stuffed with global giants with high overseas earnings — think HSBC, Shell, GSK, Unilever, BP, Diageo, and British American Tobacco — we shouldn’t be too surprised. In dollar terms, the Footsie was largely flatlining.
Don’t forget, too, that recent events have conspired favourably for several of those companies. Rising oil prices have boosted the share prices of Shell and BP, for instance. HSBC’s earnings are predicted to rise due to higher interest rates, fuelling a 34% increase in its share price since last November.
In short, a certain inevitability was baked into Friday’s 7,902. And to state the obvious, a certain inevitability is baked into any figures you subsequently see that are higher than 7,902. They will come.
The fuller picture
So what does all this mean for investors? Precious little, I’m afraid — despite the media hoopla.
It’s almost five years since the Footsie’s previous peak, in May 2018. Friday’s record close, to put it in context, is an increase of just 1.6% on that May 2018 figure. Hardly cause for celebration.
The FTSE 250 index, less dominated by global behemoths straddling a handful of industries — and therefore more representative of the fortunes of the UK economy — is still 2.6% below its own 2018 peak.
More tellingly, observes the Association of Investment Companies, it is some 15% below the all‑time high it set in 2021, before the Russian invasion of Ukraine, and the onset of recession fears.
Go west. Go east. Who cares? Just go.
In fact, one of the most interesting observations I’ve seen comes from the Financial Times, which points out that the Footsie is up just 14% from its dotcom high in 1999 — while America’s S&P 500 has risen by more than two and a half times since then.
Meanwhile, The Economist notes that the value of the entire FTSE 100 – all of it – is around the same as that of Apple.
I know which growth record I prefer. And while the comforting appeal of the Footsie can’t be denied — all those household names, a familiar governance and taxation framework, and no currency complications — it is equally undeniable that a dollop of overseas shares in a portfolio provides welcome diversification, and different growth opportunities.
I’ve said it before, and I’ll say it again: Asia, Europe, North America — don’t crimp your wealth-building strategies by solely sticking to the UK. And particularly not solely the highly concentrated FTSE 100, all-time high or not.
