The FTSE 100 stocks that time forgot

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The last ten years have not been especially kind to the UK stock market, though with an annual total return over 5%, the FTSE 100 has at least shown a clean pair of heels to both cash and inflation. The performance of the stock market in the last decade serves to highlight the importance of both diversification and dividends to investor returns.

The latter of course are not included in the headline Footsie index, which acts as quick barometer of the health of the UK stock market. In any 24 hour period dividends don’t amount to much, so the Footsie is a handy and accurate measure of day to day stock market performance. But the longer the period you look at, the more the headline index undercooks investor returns by ignoring dividends. Hence why the FTSE 100 index today sits just below where it started the millennium, yet investors who reinvested dividends have more than doubled their money in that time.

Of course the year 2000 witnessed the dotcom crash, which resonates today as technology stocks have helped drive the global stock market to a record high. The strong recent gains in international stock indices, combined with the economic damage still being sustained by the pandemic, have led to legitimate questions about whether markets are in bubble territory.

Some valuation measures are indeed flashing red, most notably the Shiller PE ratio. Against this we have to weigh up the boost to sentiment and economic activity that vaccination programmes could deliver if they are successful in beating back the virus. Not to mention the vast amount of monetary and fiscal stimulus that has been thrown at the global economy.

Both bull and bear cases have merit, which means the crystal ball is as murky as it ever is, and markets could move substantively in either direction this year without defying the laws of statistics. In such a scenario, investors should be shrewd, rather than fearful or greedy. Investors might want to consider hedging their bets by drip feeding money into the market every month this year and buying into the market gradually, which should make for a smoother journey.

They also shouldn’t ignore the potency of dividends, which can boost total returns if reinvested over the long term, and also act as a safety net for valuations. UK market performance over the last ten years demonstrates that it doesn’t have to be a vintage decade for stocks in order for sensible investors with balanced portfolios to make a decent return.

The FTSE 100 stocks that time forgot

Within the headline UK index itself there have been a wide range of fortunes. A handful of Footsie stocks, that time seems to have forgotten, actually posted a negative return over the last decade, even allowing for the reinvestment of dividends. Banks and supermarkets account for the majority of these poor performers, and a portfolio focused on these sectors would have consequently suffered greatly in the last ten years. The worst performing stock was NatWest, the banking giant formerly known as RBS, in which the taxpayer still retains a 62% stake.

  10 year share price growth % 10 year total return % Value of £10,000 invested (total return)
Sainsbury (J) PLC (38.0) (4.4) £9,558
Fresnillo PLC (22.6) (7.1) £9,290
Barclays PLC (39.8) (20.7) £7,930
Lloyds Bank PLC (44.6) (23.6) £7,640
Tesco PLC (42.8) (25) £7,500
Rolls-Royce Group PLC (52.6) (32.6) £6,740
Standard Chartered PLC (69.2) (44.2) £5,580
NatWest Group PLC (58.8) (52.1) £4,790

Source: Sharepad to 08/01/2021, based on stocks currently in the FTSE 100

Over this period, banks have been hampered by PPI claims, concerns over the economic impact of Brexit, and a low interest rate world which makes it very difficult to earn a crust when your main product is money. Add the covid crisis into the mix and it adds up to a pretty miserable decade for bank investors. Lloyds has provided decent dividends along the way, but even adding those into the equation can’t pull its performance out of the red.

Sainsbury’s and Tesco haven’t had a great time either. Their woes can largely be summed up in two words: Aldi and Lidl. Over the last ten years the discounters have stamped their presence on the UK grocery market, lowering prices and pushing down margins for other supermarkets. Online delivery hasn’t been a friendly trend for supermarkets either– it’s allowed Ocado to steal market share, and doesn’t result in consumers buying more stuff in their weekly shop, but does require spending on IT and delivery infrastructure.

Dividends and diversification

The poor performance of banks and supermarkets underlines the importance of diversifying your portfolio across industries, so that one or two underperforming sectors don’t overly damage your nest egg. If in doubt, diversification can be achieved in the core of a portfolio through active funds, index trackers and investment trusts, leaving investors to be more exploratory with supplementary investments in individual stocks.

The FTSE 100 index as a whole has returned 68% over the last ten years, with dividends reinvested. It’s managed a return of just 15% without dividends, which demonstrates what an important factor these are in long term investor returns. Indeed 14 FTSE 100 companies have seen their share price go backwards in the last ten years, but have still posted positive total returns thanks to reinvested dividends. 10 of the companies that have experienced a share price slide over the last decade have still beaten cash returns when reinvested dividends are factored in, some by quite some margin.

  10 year share price growth % 10 year total return % Value of £10,000 invested (total return)
Imperial Brands PLC (17.4) 56.1 £15,610
IAG SA (22.5) 52.2 £15,220
Land Securities PLC (6.7) 42.0 £14,200
British Land Co PLC (12.0) 39.0 £13,900
Aviva PLC (14.9) 38.4 £13,840
BT Group PLC (22.7) 37.3 £13,730
Vodafone Group PLC (41.0) 34.4 £13,440
Shell PLC (33.1) 24.0 £12,400
BHP Group PLC (10.9) 21.8 £12,180
BP PLC (39.4) 13.3 £11,330
Instant access cash N/A 6.9 £10,690
Morrison PLC (32.4) 6.7 £10,669
Pearson PLC (31.6) 6.2 £10,616
HSBC Holdings PLC (39.4) 4.4 £10,439
Anglo American PLC (14.0) 1.8 £10,181

Sources: Sharepad to 08/01/2021, based on stocks currently in the FTSE 100, cash returns based on average instant access accounts as compiled by the Bank of England.

The best performing FTSE 100 shares of the last decade

While some share prices have gone backwards, there have been some incredible success stories on the UK stock market too. Ashtead Group, the construction equipment hire specialist, has turned £10,000 invested at the beginning of 2011 into £227,000 today. JD Sports has turned £10,000 invested into £193,000 today, despite operating in the besieged UK retail sector, demonstrating that well-executed business plans can deliver returns, even in challenged pockets of the economy.

JD Sports’ performance actually outstrips the dollar return posted by Amazon shares, where a $10,000 investment ten years ago would now be worth $171,600. That means over the last ten years, JD Sports has been a better investment for a UK investor than Amazon for a US investor. However once the depreciation of sterling over the last ten years is taken into account, Amazon just pips JD Sports, turning £10,000 into £201,900, so UK investors would just about have been better off plumping for the US tech giant.

  10 year share price growth % 10 year total return % Value of £10,000 invested (total return)
Ashtead Group PLC 2050 2170 £227,000
JD Sports Fashion PLC 1800 1830 £193,000
Entain PLC 1270 1510 £161,000
Ocado Group PLC 1230 1230 £133,000
London Stock Exchange PLC 1020 1070 £117,000
Barratt Developments PLC 671 886 £98,600
Scottish Mortgage PLC 812 833 £93,300
Persimmon PLC 556 748 £84,800
Rightmove PLC 685 729 £82,900
Halma PLC 636 672 £77,200

Source: Sharepad to 08/01/2021, based on stocks currently in the FTSE 100

These articles are for information purposes only and are not a personal recommendation or advice. Past performance isn't a guide to future performance, and some investments need to be held for the long term.


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Written by:
Laith Khalaf

Laith Khalaf is Finanial Analyst at AJ Bell. He began his financial services career in 2001 at Hargreaves Lansdown, where he worked a variety of roles across pensions and investments, covering both DIY and advised business. Laith began to focus on research and investments in 2007, becoming a leading industry commentator. He’s provided daily business bulletins on LBC, is a regular contributor to the financial pages of the national press, and a frequent guest on TV and radio. He has a degree in Philosophy from Cambridge University.