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How COVID-19 has changed the FTSE 100 and FTSE 250

William Ryder, Equity Analyst, examines the ways COVID-19 has changed the FTSE 100 and FTSE 250.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The FTSE 350, a combination of the FTSE 100 and FTSE 250, contains the largest, as well as medium sized, companies on the UK stock market. Investors follow these indices to keep track of the broader UK stock market. But the index is not static – it changes as new companies are added or as some sectors grow in size relative to others. Since the start of the year the index has fallen 21.5% as COVID-19 has battered societies around the world.

Annual percentage growth
Apr 15 -
Apr 16
Apr 16 -
Apr 17
Apr 17 -
Apr 18
Apr 18 -
Apr 19
Apr 19 -
Apr 20
FTSE 100 -7% 20% 9% 3% -17%
FTSE 250 1% 20% 6% 0% -15%
FTSE 350 -6% 20% 8% 3% -17%

Past performance isn't a guide to the future. Source: Datastream, 30/04/2020.

The damage hasn’t been spread evenly though, so some sectors now make up a larger proportion of the FTSE 350 index than they did a few months ago. This means investors in index funds are holding a different portfolio to the one they had at the beginning of the year. The best performing sectors have been those that provide things we can’t do without – even in a pandemic. These include healthcare, utilities, food and basic personal items. On the other hand, the worst hit sectors are characterised by high debts and profits that tend to boom and bust in step with the rest of the economy.

Total return of the FTSE 350 super-sectors

Past performance isn't a guide to the future. Source: Refinitiv, HL, 30/04/2020.

Sectors aren’t all the same size though. The Automobiles & Parts sector contains just two relatively small companies – Aston Martin Lagonda and TI Fluid Systems – with a combined market capitalisation of just over £450m. Meanwhile the Oil & Gas sector has a market capitalisation of around £170bn, and includes giants like BP and Royal Dutch Shell.

The chart below shows the relative weights of each sector on 1 January 2020 and 30 April 2020. Investors in the index today have less of their money in Oil & Gas, Banks and Travel & Leisure, but relatively more in Personal & Household Goods and Health Care.

FTSE 350 super-sector weights

Scroll across to see the full chart.

Source: Refinitiv, HL, 30/04/2020.

Why has this happened?

Indices like the FTSE 100, 250, 350 and All-Share are weighted by market capitalisation, which is the total value of all the company’s shares that are listed on the stock market.

This means that if active investors rate a company highly and push its share price up relative to other companies, the index will be more heavily weighted towards that company. In the same manner, if investors bid a company’s shares down, the index will hold less of it.

This means passive investors benefit from the collective judgement of all the active stock pickers.

What does this mean?

If you buy an index fund today you’re buying something different to what you would have bought three months ago. Oil & Gas companies, for example, accounted for 12.2% of the FTSE All-Share back in January but just 9.9% by mid-April. By comparison the amount invested in Healthcare had risen from 9.6% to 12.5%.

Is today’s portfolio better than the one three months ago?

Well, it’s the best collective judgement of active stock pickers, so you could make the argument that it’s better suited to the current environment.

But, as the last couple of months prove all too well active investors can make mistakes, even collectively. Please remember that all investments and their income fall as well as rise in value, so you could get back less than you invest. This article is not personal advice. If you’re unsure, please seek advice.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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