THE FTSE-100 Share Index is the most closely watched stock market
indicator but there are times when it does not give a true picture of
what is happening, and this has particularly been the case lately.
The FT-Actuaries All-Share Index is the one against which funds
compare their performance over the long term but it does not reflect the
greater volatility of the larger capitalisation stocks.
However, with the new indices -- the FTSE Mid-250 and FTSE Actuaries
350 -- it is possible to have a better idea of where the larger stocks
are going.
The 100 share index is undoubtedly an improvement on the old FT-30
Share Index but can
still be distorted by its components.
The index is simply the largest 100 companies by capitalisation and
every quarter it is assessed and there are usually some substitutions to
be made.
While all the 100 are major companies there is still a wide variation
in size between the top and bottom.
The two biggest capitalisation stocks, BT and Glaxo, account for a
tenth of the index and overall the top 20 account for over half the
index.
Pharmaceuticals are strongly represented with SmithKline Beecham and
Wellcome, in addition to Glaxo, and they have all been under a cloud as
a result of the more aggressive line which the Clinton administration
will take on drug prices. So they have been depressing the index.
Similarly, oils are a major influence (with BP, Shell and British Gas)
and they have been under pressure by weak oil prices and in British
Gas's case by its regulator.
Last year the 100 share index exaggerated the strength of the
underlying market because its constituents derive a large proportion of
their earnings from overseas and because the largest companies were
expected to benefit first from any recovery in the UK economy.
Following Britain's exit from the ERM in September these stocks
powered ahead because their profits were immediately guaranteed a boost
because
of the currency translation
effect.
Until December the market as a whole did not perform as well as the
top 100 shares. Only in that month did the rest of the market catch up
and in the new year the situation was reversed with smaller
capitalisation stocks taking up the running because it was realised they
had been left behind and had greater operational gearing to economic
recovery. This was not much apparent at that point but even then the
market was looking towards the second half of the
year.
The FTSE Mid-250 takes in the next 250 stocks in terms of
capitalisation and on a comparative basis there was a crossover between
this index and the 100 share index in January, with the 250 taking the
lead and this has persisted well into 1993.
The 100 and 250 indices combined make up the FT-Actuaries 350 index
which clearly gives a better overall view. However, it will not show how
small companies are performing.
This is the job of the FTSE SmallCap Index which comprises at least
500 companies capitalised at between #20m and #150m. It is calculated
with and without investment trusts and is at
times bound to be at variance
to the indices tracking larger
stocks.
To get the real picture there is little alternative but to follow the
100, 250 and SmallCap.
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