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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