Opportunities With The FTSE 100 Stock Index

The FTSE 100 stock Index – This index is the second highest value stock index of the United Kingdom after the FTSE all share index. Launched on 3 January in the year 1984, the FTSE 100 stock index comprises of the top 100 stocks listed on the London Stock Exchange arranged in descending order in terms of the market capitalization, which at any point of time represents at least 80 percent of the total market capitalization of the London Stock Exchange. Some of the top name of companies donning this list are 3i Group Plc, Associated British foods Plc, Admiral Group Plc, Anglo American Plc, Antofagasta Plc, Ashtead Group Plc, AstraZeneca Plc, Auto Trader Group Plc, AVEVA Group Plc, BAE Systems Plc, Barclays Plc, Barratt Developments Plc, JD Sports Fashion Plc, Berkeley Group Holdings (The) Plc, BHP Group Plc, BP Plc, British American Tobacco Plc, British Land Co Plc, BT Group Plc and  Bunzl Plc.

The FTSE 100 stock Index is calculated on a real time basis and is published every second from 8.00 am in London when trading starts on the London Stock Exchange till 4.30 pm in the afternoon when the trading on the exchange concludes for the day. On the closing of trading day at the London Stock Exchange on 16 October 2019 the index was placed at 7,174.12 which is down 47.04 points from the closing quote on 15 October 2019.

This headline stock index, also known as the large cap stocks index, is representative of the largest companies in the United Kingdom, in terms of revenues and market capitalization and is seen by many as the barometer of the British economy. It is studied by academicians, economists, debt market makers, stock market professionals and researchers alike to carefully consider the implications of any unwarranted movements in the general economic indicators of the British economy on the stock index and vice versa. However, this concept of being the barometer of the British economy has come to be challenged more recently as the index now houses an increasing number of multinational and foreign companies whose performance is remotely linked to the macro-economic fundamentals of the British economy. It is being argued that the said title should now go to the FTSE 250 index which has a greater proportion of Great Britain domiciled companies with a healthy mix from all sectors.

It has been observed that there exists an inverse relationship between the FTSE 100 index and the British Pound Sterling. Whenever there is weakness in the British currency most of the FTSE 100 companies enjoy better fortunes on account of higher sales. A fall in the British Pound Sterling usually signals a high earning period for the exporters of that country as well as other businesses dependent on these exporters. A complimentary effect of this heightened business activity would be that businesses borrow more money to fund their activities, which will again push up demand for the currency.

Opportunities available with the FTSE 100 index

The current uncertain business environment as a consequence to Brexit has made investment in the stock market a very risky affair. However, there are still some very promising ideas that an astute investor should take into account to proactively deploy funds and generate decent gains. Several such opportunities within the FTSE 100 index do exist; some of these are discussed below.

Multinational and international companies – This Index is host to a number of international and multinational companies whose fortunes are either remotely or not entirely dependent on the economic vagaries of the British economy. Investment in such stocks will provide investors a hedge against the stock performance of domestic companies who are largely affected by the adverse macro-economic climate prevailing in the United Kingdom.

Some examples  of such companies on the FTSE 100 index are the Vodafone Group Plc, Rio Tinto Plc, RELX NV, Prudential Plc, Pearson Plc, Mondi Plc, InterContinental Hotels Group Plc, Glencore Plc, GlaxoSmithKline Plc, Fresnillo Plc, Ferguson Plc, JD Sports Fashion Plc, British American Tobacco Plc, AstraZeneca Plc, etc.

Energy Resource companies – Energy resource companies are companies that are least affected by the economic environment prevalent in the country. It is usually very difficult to adjust a country’s energy consumption no matter what the economic situation may be. Given the situation prevalent in the United Kingdom, investment in these companies may provide safety of capital along with moderate returns.

The examples of such companies on FTSE 100 index are BP Plc, Royal Dutch Shell Plc, etc.

Export Oriented Companies – The companies that traditionally benefit the most from a weak British Pound are the export-oriented companies. As the Pound sterling weakens the affordability of British goods among international buyers increases. This pushes international demand for British goods, thereby pushing up the fortunes of British companies who are either direct exporters or support export- oriented businesses in that country.

A few examples of companies on the FTSE 100 list that are export oriented are BAE Systems Plc, Carnival Corporation, GlaxoSmithKline Plc, International Consolidated Airlines Group SA, JD Sports Fashion Plc, InterContinental Hotels Group Plc, AstraZeneca Plc, Anglo American Plc, etc.

FTSE 100 Index Funds – There are many mutual fund companies which provide FTSE 100 index funds incorporating the above two benefits in their portfolios. Investors putting their money into such funds will get the additional benefit of professional management in addition to the above.

Building a dividend portfolio – Another viable way of getting a decent return from this market despite the cloudy macro-economic climate is to build a dividend portfolio of stock that pay consistent dividend from the list of FTSE 100 companies. There are several companies on that list which are cash rich and would continue to pay dividends even under these conditions.  Moreover, these stocks have also been trading at a relative discount due to the macro economic environment. This has resulted in many of them having higher dividend yields that are very attractive and worth making an investment in.