Synopsis: The FTSE 100 ended the year down 2.7%, its worst performance since 2011. However, with the help of a late Christmas rally, it could have been worse.

Date posted: Monday, January 05, 2015

The FTSE 100 ended 2014 slightly down from where it started. Add back in dividends (the FTSE 100 yields about 3.5%) and the total index return just scraped into positive territory over the year.

The Footsie, with its heavy weighting in energy and other commodity companies, did better than might have been expected, given the demise in the oil price and weakness in metals. For once, the FTSE 100′s performance was very close to the other main market indices, as the table below shows.

Index 2014 Change Comment
FTSE 100 -2.7% The big caps headline – first fall since 2011
FTSE 250 +0.9% Mid-caps outperform Footsie yet again
FTSE Small Cap -1.5% Small caps outperformance fades
FTSE 350 Higher Yield -3.9% Value-investing lagged the Footsie
FTSE 350 Lower Yield -0.2% Growth was the marginally better bet in 2014
FTSE All-Share -2.1% Just outperformed Footsie due to mid/small caps
FTSE REITs +19.7% Top sector: commercial property shines through
FTSE Food & Drug Retailers -34.5% Bottom sector: the Tesco effect

Over the year the dividend yield on the FTSE All-Share rose from 3.28% to 3.37%, implying dividend growth of just 0.6%. The 2011, 2012 and 2013 annual dividend increases were all higher. In 2014 there were some dividend cuts – notably Tesco – while the market size of Vodafone, one of the biggest dividend payers, was almost halved when the company sold off its Verizon Wireless stake in February. The rise in the equity dividend yield compares with declining yields on gilts – 10 year gilts reversed their 2013 price fall and ended the year yielding at just 1.76% (from a 3.05% starting point).

The performance of the UK equity market was similar to most other major stock markets. For example, the Euro Stoxx 50 total return was 4%, but for UK investors there was a 5.7% decline in the euro against sterling, wiping out the profit. Currency worked the same way for Japan: while the Nikkei 225 rose by 7.3%, the Yen dropped by 6.6% against sterling. Sterling’s strength did not extend to the mighty US dollar, which rose 5.6% against the pound while the S&P 500 added 11.3%. Emerging markets, which had their own commodity and political excitement during the year, performed slightly better than the UK, with the MSCI Emerging Markets index up 1.3% in sterling terms.


The Footsie spent the first nine months of 2014 churning between 6,500 and 6,900, never quite reaching its end 1999 peak. In October the index dropped below 6,200, a point it revisited in mid-December. Thus the calendar year performance could have been much worse, were it not for the belated Santa rally.


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