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Stocks for the Very Long Run: The UK-100

Global Financial Data has added the UK-100 Index to its family of GFD Indices. The UK-100 index (GFUK100MPD) provides a DAILY index of stocks from the London Stock Exchange that begins in 1692 and ends in 1985. The index has a base of 12/31/1983 = 1000 so the index can be linked up to the FTSE-100 index and provide over 325 years of daily data on British stocks. With over 87,000 data points, the UK/FTSE-100 index provides more stock market history than any other index on the planet. The Index is available not only as a price index, but as a return as well.

 

The GFD UK-100 Index provides an unparalleled history not only of the London Stock Exchange, but of the entire financial world. Hundreds of companies from around the world listed on the London Stock Exchange in the 1800s and 1900s as London funded the growth of the global economy. The FTSE-100 provides daily data back to 1984 and the FT-30 Industrials provides daily data back to 1935. The GFD UK-100; however, provides a daily, market-cap weighted index of British stocks that traded in London from 1692 to 2018 and includes over 87,000 data points to help analysts understand the performance of the stock market over the past 327 years.

We have divided up the history of the London Stock Exchange into four eras: Monopolies (1692 to 1805), Free Trade (1806 to 1914), the Great Reversal (1914 to 1974) and Globalization (1975-). Each of these eras represented different attitudes of the government toward the stock market. This directly affected the performance of stocks, bonds and bills. We noted that the most significant change in the stock market occurred in 1914 when the government began its extensive intervention in the economy and the stock market which continues today. Between 1692 and 2018, stock prices increased at an average rate of 2.00% per annum before inflation and 0.50% after inflation, and with reinvested dividends averaging 4.63% per annum, investors received a total return of 6.72% per year. £1 invested in stocks in 1692 grew to £31.358 million in 2018 and with reinvested dividends grew to £1.817 billion assuming no taxes and full reinvestment. By contrast £1 invested in government bonds grew to £1.208 million between 1700 and 2018 and £1 invested in bills grew to £793,891 between 1694 and 2018.

The equity risk premium over the past 327 years was 2.29%. Whereas most analysis of the dividend yield and equity-risk premium rely upon less than 100 years of data. The GFD UK-100 Index not only provides 327 years of data to calculate the risk premium, but provides information on how it changed over time. The best annual performance was 1975 when the market rose 127.69% and the worst was in 1974 when the market fell 50.61%.

The GFD UK-100 also provides a detailed history of the 25 bear markets that have occurred in London over the past 327 years as well as how the market capitalization increased from under £1 million in 1692 to over £2.5 trillion at the beginning of 2018. The composition of the market has switched from being composed of three companies in the 1700s to one dominated by transport and finance companies in the 1800s to one in which no sector dominates the market today.

London was the financial center of the world from 1692 until 1914 when the cost of fighting World War I forced London to cede the title to New York. London remains the center of Europe’s financial markets today which, despite the current battles over Brexit, it will likely maintain for the rest of the century. The GFD UK-100 index provides a unique record of London’s equity markets over the past 327 years.

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