We look at how the stock market wreckage of the last year has affected the make-up of the FTSE 100 index.
Where do we go from here is the question many investors have at the moment. I can’t claim to have the answer but, as far as the UK stock market goes, perhaps we can find some clues by looking at which companies dominate the FTSE 100 index and therefore govern the fortunes of many index trackers.
Here’s how the top ten looks as I write:
Company | Market cap
£bn | Forward P/E ratio | Forward dividend yield |
|---|
HSBC (LSE: HSBA) | 106.3 | 12.4 | 5.3% |
Royal Dutch Shell (LSE: RDSB) | 91.6 | 5.3 | 5.2% |
BP (LSE: BP) | 78.1 | 5.1 | 6.3% |
Vodafone (LSE: VOD) | 63.8 | 8.9 | 6.3% |
GlaxoSmithKline (LSE: GSK) | 60.1 | 11.3 | 4.6% |
AstraZeneca (LSE: AZN) | 33.2 | 9.1 | 4.2% |
Tesco (LSE: TSCO) | 30.0 | 13.2 | 2.9% |
BG (LSE: BG) | 27.3 | 9.0 | 1.2% |
Rio Tinto (LSE: RIO) | 26.2 | 5.3 | 2.5% |
Br Am Tobacco (LSE: BATS) | 25.4 | 13.3 | 4.2% |
Average | | 9.0 | 4.9% |
A couple of notes on the above for any fellow investment geeks: I’ve reduced the market value of British American Tobacco to reflect the fact it only has a 75% weighting in the FTSE 100 index due to presence of a major corporate shareholder. Secondly, the average figures for the forward P/E ratio and dividend yield have been calculated by weighting each company according to its market value.
How has the FTSE 100 changed?
The top half of this list consists of the same five companies it did back in December 2006. The order has changed at the very top however. Somewhat surprisingly HSBC, one of the few banks to have remained relatively unscathed over the last year, has leapfrogged both BP and Shell to take pole position. Indeed HSBC is now worth almost double the amount of the four other big UK banks combined.
The three banks that were formerly in the top ten, Royal Bank of Scotland (LSE: RBS), HBOS (LSE: HBOS) and Barclays (LSE: BARC) have made way for Tesco, BG and British American Tobacco. The only other change is that Rio Tinto has replaced fellow mining behemoth Anglo American (LSE: AAL). Given all that’s happened since the end of 2006, you could argue the make-up of the FTSE 100 index has changed surprisingly little.
Big caps still dominate
One criticism that has been levelled against UK index trackers as an investment is that they are concentrated on too few companies. Nothing has changed in that regard, indeed the top ten companies now make up around 51% of the FTSE 100 index compared with 47% back in December 2006. I don’t have figures to hand but I suspect this is the highest proportion for quite some time.
However, I don’t think many investors will see this concentration as top of their list of concerns at the moment! These ten companies are predominantly well funded and internationally diversified – which is just what’s needed at the moment.
How reliable are these forecasts?
Although I’ve included forecast data in the table there is obviously a big question mark over how reliable these figures are. When the economy suffers, analysts’ forecasts often lag reality and ultimately prove to be too optimistic.
Many of these companies have seen their earnings forecasts downgraded already this year although the figures for the two oilies and Rio don’t yet reflect the recent decline in commodity prices that could hit their profits in the second half of this year.
Knocking 10% off forecast profits would result in an average forward P/E ratio of about 10 times. That’s cheap with interest rates at just 4.5%. But then I said pretty much exactly the same thing when the FTSE 100 index was both 1,000 and 2,000 points higher than it is today. Being cheap counts for very little when nobody wants to buy.
More: Top Ten Trackers
