Diamond Jubilee: markets over the last 60 years

1st June 2012

As the Queen celebrates her Diamond Jubilee this weekend, we thought we would look at how Britain’s financial markets have changed over the past 60 years. After conducting just a small amount of research, it appears that all aspects of markets and investments have dramatically changed over this period. Below is a snapshot for your review.

Diamond Jubilee, image courtesy of David J Dalley, Flickr

FT 30 to FTSE 100

The index used in 1952, the FT 30, was mainly made up of UK-based companies engaged in heavy industry, such as the British Motor Corporation, Lancashire Cotton, London Brick and United Steel. On the retail side Harrods and Woolworth featured.

There were no banks, oil companies, pharmaceutical stocks or miners. The first oil company, BP, joined the index in 1977. National Westminster was the first bank in the FTSE 100, which entered as late as 1984.

The only companies in the Index in 1952 that are still in the FTSE 100 Index today are GKN, Imperial Tobacco, Rolls-Royce and Tate & Lyle. None of those companies has formed a major part of the Index over the period. In fact, Rolls-Royce actually had a reasonable pause and change of focus in the meantime.

Overseas investments

The first investment trust was launched as early as 1868 and the first unit trust in 1931; however the concept didn’t really extend to the mass retail market until the 1960s. Also – possibly due to the exchange controls and dollar premium – few investors had any overseas equity exposure.

Back then the concept of a portfolio of managed funds, which could spread assets widely across different asset classes and geographic regions, adding value in asset allocation as well as manager selection, was completely alien.

The cult of the equity

The so-called ‘Cult of the Equity’ had yet to take hold. The idea of mass personal pensions was still decades away and, in a period of low inflation, most investors saw gilts, typically yielding about 3%, as the main answer to their long-term investment needs. Equities persistently yielded more than gilts, as they do again now for very different reasons, but the risks involved were seen as excessive and unnecessary.

The equity investor has been far more handsomely rewarded over 60 years than the bond or cash investor. For example, £1,000 invested in a UK index fund 60 years ago (if such a thing had existed) would have been worth £77,176 at the end of 2011, even if all the dividends had been spent.

If the dividends are included, the figure rises to £1,043,405 – a compound annual return of 6.6% ahead of inflation. Whereas £1,000 invested in gilts would now be worth £82,378 if the income had been reinvested, and a cash deposit would only be worth £60,145.

That, of course, is not to say that anything like this will happen again in the next 60 years. As we are all aware, past performance is not a reliable indicator of future results.

We may continue to face challenges, nevertheless this is a moment to recognise the fact that investors have been, almost uniquely, empowered by change during the Queen’s long stewardship of the nation.

In summary…

Almost no part of British life has changed as radically as its financial markets over the last 60 years. The only companies in the index in 1952 that are still in the FTSE 100 index today are GKN, Imperial Tobacco, Rolls-Royce and Tate & Lyle.

The concept of a portfolio of funds, which could spread assets widely across different asset classes and geographic regions, adding value through asset allocation, was completely alien.

Could anyone have predicted, in 1952, how different the economic environment of 2012 would be? Probably not, and it is unlikely that anyone today can predict accurately what will happen over the next 60 years? To reduce risk it is prudent to have a plan that is reviewed regularly.

For advice related to your specific needs and circumstances, please get in touch.

Note that a lot of the content in this post was inspired by: Richard Cumming-Bruce, senior investment researcher at Principal Investment Management.