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Index IDEA: Key UK equity market drivers highlighted by variation of FTSE 100 index

Viewing the UK equity market through the lens of the FTSE 100 Semi Annual Equally Weighted Index illuminates positive and negative drivers for this market year-to-date and over the last five years. The index automatically reweights all individual constituents within the FTSE 100 Index to 1% every June and December, making it an effective lens through which to analyse outsized price swings in UK-listed stocks:

  • Year-to-date as of 16 March, the FTSE 100 Semi Annual Equally Weighted Index fell 0.6%, down more than the standard market capitalization-weighted FTSE 100 Index, which fell ust 0.14%. This differential can be attributed in part to the overweighting of UK mining stocks, hit hard in recent months. As of 16 March, the three highest weighted constituents in the FTSE 100 Semi Annual Equally Weighted Index were UK-listed mining stocks Glencore, Randgold Resources and Fresnillo, with weights of 1.61%, 1.53% and 1.31%. This contrasts with the three highest weighted constituents in the FTSE 100 Index of HSBC, British American Tobacco and Royal Dutch Shell with weights of 5.64%, 4.85% and 4.53%, respectively (8.58% in the case of the latter when combined with Royal Dutch Shell’s secondary share class).
     
  • And, based on backtested hypothetical performance over the last three and five year periods as of 16 March, the FTSE 100 Semi Annually Weighted Index has risen 5% and 8.3% relative to 2% and 5.8% for the FTSE 100 Index on an annualised basis for the same time periods. This differential can be attributed in part to an underweighting over this period of the largest names in the FTSE 100 Index, such as oil giants Royal Dutch Shell and BP and banks such as HSBC and Barclays. Both Financials and Oil & Gas sectors have encountered headwinds over the past few years, given the drop in oil prices on the latter and regulatory burdens and continuing low interest rate environment on the former.


Performance of the FTSE 100 Index & FTSE 100 Semi Annual Equally Weighted Index as of March 16, 2016

Source: FTSE Russell, data as at 16 March 2016. Past performance is no guarantee of future results. Returns shown prior to July 1, 2015 for the FTSE 100 Semi Annual Equally Weighted Index are prior to index inception so reflect hypothetical historical performance. Please see the end for important legal disclosures.


Peter Gunthorp, Managing Director, Research & Analytics at FTSE Russell:
“The FTSE 100 Semi Annual Equally Weighted Index provides a unique perspective on the performance of the UK market, by systematically reweighting FTSE 100 constituents. FTSE 100 stocks that have performed well are pared back and stocks that have not performed well are increased within the FTSE 100 Semi Annual Equally Weighted Index; relatively small stocks are over-weighted and relatively large stocks are under-weighted. The improved levels of diversification that result helps provide a consistent and balanced picture of the UK equity market over time.”

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All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

Views expressed by Peter Gunthorp are as of March 22nd and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the London Stock Exchange Group.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE 100 Semi Annual Equally Weighted Index or FTSE 100 Index or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

 

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