How the FTSE 100 ‘dinosaur’ roared again to life

[ad_1] I t was a bumper yr for inventory markets globally and the shock, maybe, is that the FTSE 100 index greater than stored up. The London market has generally been derided as missing dynamism – the hedge fund supervisor Paul Marshall referred to as it the “Jurassic Park” of exchanges just a few years in the past – however its most important index loved its greatest 12 months since 2009. The Footsie didn’t fairly make it to the spherical variety of 10,000 however nonetheless improved by 21.5%, barely outperforming the S&P 500 index within the US.

How did that occur amid weakening UK progress, pre-budget chaos and common gloom? The brief reply is {that a} inventory market index displays solely its constituent components. It isn't a logo of nationwide financial virility. That's very true of the internationally flavoured Footsie, whose members make about three-quarters of their mixed revenues abroad.

The story of 2025 was one among useful breezes blowing by means of a lot of a very powerful sectors. Defence shares loved commitments by Nato’s western European members to spend extra closely on gear. That assisted firms comparable to Rolls-Royce, whose outstanding run has taken the shares from sub-100p in 2022 to £eleven-plus at the moment. Banks have had near-perfect circumstances of low defaults and falling rates of interest. The invoice (for some) from the automobile finance scandal was disregarded simply.

World mining firms, that are nonetheless a big slice of the Footsie, loved the gold-inspired rally in the whole lot associated to valuable metals plus the demand for copper that comes with vitality transition and electrification. One of the best-performing share within the index was Fresnillo, a Mexico-based silver miner, up virtually fivefold. Over in prescribed drugs, Donald Trump’s bark on tariffs and costs proved worse than his chew. AstraZeneca, probably the most invaluable element of a value-weighted index, rose virtually 30%.

In the meantime, Nationwide Grid and SSE, two heavyweights in UK vitality infrastructure, benefited from regulatory funding for the improve of the transmission community. Nearly the one “drawback” inventory on the prime finish of the index was Diageo, the Johnnie Walker and Smirnoff drinks maker, which was mired within the associated problems with a weak world spirits market and boardroom upheaval.

FTSE 100 graphic Sue Noffke, the pinnacle of UK equities on the fund supervisor Schroders, makes the purpose that the Footsie’s rise shouldn't be considered purely as a one-year phenomenon. Return three years and the typical funding return together with dividends has been 14% a yr for a cumulative return of 48%.

An inexpensive start line is clearly one issue. Whilst late as spring 2024, the Footsie was priced at just below 10 occasions its predicted earnings for the subsequent yr, extraordinarily low by historic requirements.

Noffke additionally highlights company self-improvement – “firms doing it for themselves” – and the position of share buybacks. There's a lengthy record of firms that may be seen as getting stricter of their capital allocation in pursuit of higher returns, and being prodded by shareholders to take action.

Unilever demerged its ice-cream division as Magnum in 2025, echoing GSK’s separation of its shopper merchandise division as Haleon in 2022. The commercial heavyweight Smiths Group is breaking itself up. BP, after years of flip-flopping, is “pivoting” away from its low-return renewables investments. Anglo American has engaged in a multiyear restructuring that resulted in a well-received $50bn (£37bn) merger with the Canadian rival Teck Sources. AB Meals is considering splitting the low cost retail chain Primark from its meals and components companies.

The buyback angle represents a shift in considering in London. Within the outdated days, dividends had been a precedence, which was why a core a part of Marshall’s dinosaur thesis was that London’s fund managers are obsessive about revenue quite than progress. Now buybacks, which supply extra bang for a similar buck when – critically – the shares are low cost, are a higher a part of the combination. In any case, the concept UK buyers set the tone might be old-fashioned: US funds personal extra of the Footsie than the locals lately.

Noffke calculates that 55% of bigger UK firms have purchased again at the least 1% of their shares up to now 12 months, in contrast with 40% within the US. Shell has purchased again greater than 20% of its fairness since 2020, for instance. “The UK inventory market has moved on from being the dividend yield capital of the world,” she argues. “It’s nonetheless engaging on dividend revenue, however it’s not so standout. It has now moved to develop into the share buyback capital of the world.”

Therein – perhaps – lies a path for a picture overhaul for the London inventory market. The outdated complaints concerning the dearth of latest arrivals and the dearth of whizzy US-style tech and AI shares are nonetheless heard. However buyers in the end care about valuations and returns.

Noffke places the attraction of the UK market like this: “We now have a distinct sectoral combine that isn't dependent, or wholly dependent, on an AI thematic. We're low cost. We're money wealthy. We’re shopping for a variety of shares again, and are fairly shareholder pleasant. And we’re seeing a variety of firms that, by means of a mix of top-down from administration and bottom-up from the investor base, are displaying extra grip and extra ambition.”

The Footsie nonetheless has to maintain moving into the identical vogue. The focus in its make-up on the prime finish might work in opposition to it if just a few vital sectors back off; and the relative lack of tech shares might finally develop into an even bigger drawback. However 2025 continued a great run. The dinosaur isn’t extinct but.