The Whole Investment Story

Synopsis: A ten year loss across the ‘noughties’ for UK shares is not the true story.

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We commented in our recent bulletin that 2009´s 22.1% rise in the FTSE 100 index was not the whole story for the past 12 months. The same “don´t-believe-the-Footsie approach” is worth taking for the ´noughties´ decade.
FTSE Index

1999-2009 Change

Capital Only

With Income Reinvested
100

- 21.89%

+ 8.97%
250

+44.41%

+ 91.22%
350 Higher Yield

+ 1.71%

+ 55.51%
350 Lower Yield

-33.42%

- 17.01%
Small Cap

-10.36%

+ 15.59%
Fledgling

+87.06%

+150.35%
All-Share

-14.84%

+ 17.72%
As with the 2009 annual figures, the mid cap FTSE 250 was a much stronger performer than its large cap Footsie counterpart. Smaller companies also outperformed the Footsie, notably so at the ultra-small Fledging level.
In a reverse of 2009, the FTSE 350 Higher Yield, a rough proxy for value investing, trounced the FTSE 350 Lower Yield (the growth proxy), even without the benefit of greater dividends. Growth was not the place to be in the ´noughties´.
COMMENT

It is all too easy to just look at stock market indices and forget that part of the return on shares comes from dividends. In a long-term comparison, such as this, reinvestment of dividends also brings pound-cost averaging into play, which can help boost overall returns.

As some of the money pages in the national press have enjoyed telling us, the FTSE 100 index ended 2009 21.9% below its closing level on 30 December 1999. As a bald fact, there is no arguing with this: the FTSE 100 peaked at 6930.2 just before the new millennium got underway and the tech boom turned to bust. However, the 21.9% loss calculation ignores dividend income, which is rarely included in index numbers. Back in 1999 the yield on the FTSE 100 was 2.04%, less than two thirds the current level. Even so, if net dividend income is allowed for, the 1999-2009 FTSE 100 return moves from an unhappy negative to 9% positive.

A similar calculation can be undertaken for the other main UK indices:

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