FTSE 100 readies for its fortieth birthday with twenty-six founder members still in the index

The FTSE 100 launched on 3 January 1984, to replace the FT-30, and the stock market benchmark’s make up has changed a lot since then. With one more quarterly reshuffle to come before its fortieth birthday, just fourteen founder members are still in the index and still using the very same name, while twelve more are still part of UK plc’s corporate elite, but under a different guise.

The other seventy-four have either fallen down through the ranks into the realms of mid- and small- caps, been acquired, been broken up or (in three instances) gone out of business, as the index has taken on a less domestic and more international flavour.

Thanks to its ever-changing nature, following the index has helped patient investors protect and augment their wealth. The FTSE 100 has advanced from 1,000 to around 7,600 at the time of writing to provide a 660% capital return, or a compound annual return of 5.2% a year. That beats the 434% total increase, and 3.7% compound annual growth rate (CAGR), in the retail price index (RPI) over the same time frame.

Source: Refinitiv data. *Retail price index rebased to 1000. RPI used as provides longest dataset for UK inflation

Critics will argue the FTSE 100 has, however, ossified since the turn of the century. The index peaked at 6,930 on 31 December 1999, just as the technology, media and telecoms bubble began to leak air, and since then it has grubbed out a capital return of just 9.7%. That equates to a turgid compound annual return of 0.4% and comes nowhere close to covering the compound annual rate of inflation of 3.4% (based on the RPI over the past twenty-four years).

This opens up the FTSE 100 to accusations that it has not done enough to move with the times and become too dependent upon a small number of behemoths that have been in the index for a long time.

Just a dozen FTSE 100 firms make up half of its current market cap. Eight of them – Shell, Unilever, BP, Rio Tinto, BAT, GSK, RELX and Reckitt Benckiser – were there in 1984, in one way shape or form and two more (HSBC and Diageo) have their origins in founder members of the index, in the shape of Midland Bank (HSBC) and Allied Lyons, Distillers and Grand Metropolitan (Diageo).

Eight of the forecast twelve biggest contributors to the FTSE 100’s 2023 aggregate-pre-tax profit were also there at the start in 1984 – Shell, BP, Rio Tinto, BAT, Unilever, Barclays, GSK and Lloyds – while NatWest and HSBC can be traced back to two more founder members, National Westminster Bank and Midland Bank.

And six of the forecast twelve biggest payers of dividends in 2023 also hail from the first crop of FTSE 100 firms. They are Shell, BAT, Rio Tinto, BP, Unilever and GSK, while HSBC and Diageo can trace their origins back to the first crop of constituents.

Source: Refinitiv data, Marketscreener, consensus analysts’ forecasts

Yet the FTSE 100 has continued to evolve over time, as can be seen from a simple comparison of the index on 3 January 1984 and 30 September 2023. Further changes are likely, thanks to the final index reshuffle of 2023.

Source: London Stock Exchange

The fortunes and fates of the FTSE 100’s founder members can be summarised as follows:

• Twenty-six of the FTSE 100’s founder members are still in the index. Fourteen of those even have the same name, although Whitbread, for example, is a different company now from the one it was then.
• The other twelve have been ever present despite changes in name and sometimes corporate structure, due to mergers and acquisitions or changes in strategy.
• Thirteen were acquired and have become part of a current FTSE 100 member.
• Two more spawned what are now FTSE 100 firms thanks to spin-outs, demergers and break-ups (Diageo can trace itself back to both Grand Metropolitan and Allied Domecq, while Racal demerged what is now Vodafone).
• Forty were acquired by other companies.
• Eleven were broken up.
• Five are still quoted but are members of a different UK index (Hammerson, Johnson Matthey, Rank, Edinburgh Investment Trust and Elementis, which was known as Harrison & Crossfield at the time).
• Three went bankrupt – British and Commonwealth Shipping, Ferranti and MFI Furniture. Acquisitions did for the British and Commonwealth Shipping (1990) and Ferranti (1993), while the latter was also undone by allegations of fraud. The Great Financial Crisis and recession of 2008 proved too much for MFI, although it had long since ceased to be a feature of public markets after a management buy-out in the late 1980s.

Source: Company accounts, Regulatory News Service, London Stock Exchange

Given the rate of change in technology, consumer tastes and regulation to name but three things that may have posed difficulties for companies over the past forty years, a 3% failure rate does not look too bad. This may help to explain the attraction the FTSE 100 has for many investors, as its member firms’ very scale means they tend to be very dependable and can be excellent sources of cashflow and thus dividends given their maturity. FTSE 100 firms are also subject to the very highest levels of scrutiny, and corporate governance has to be top notch to withstand the market’s examinations.

Nevertheless, high-profile accidents such as Ferranti, let alone Maxwell Communications, Coloroll, Polly Peck and more recently NMC Health, show investors cannot be complacent and must always do their research. Careful analysis of competitive position, management, strategy and financials is as important as ever, and will become all the more so if the London Stock Exchange eases its listing rules in its quest to facilitate more new listings and market entrants.

Source: Company accounts, Regulatory News Service, London Stock Exchange

These articles are for information purposes only and are not a personal recommendation or advice.