This report is from this week’s CNBC’s UK Exchange newsletter by Ian King. Like what you see? You can subscribe here.
FTSE-100, long a dog among equity indices, has been enjoying its very own Woof Day. Britain’s premier stock index is up 11% so far this year and has this month achieved a couple of notable benchmarks.
The index, launched on Jan. 3, 1984, with a value of 1,000, hit the 9,000 milestone for the first time on July 15 and followed that up on Thursday last week by hitting the latest in a string of all-time closing highs of 9,138.37.
It has taken just two years to go from 8,000 to 9,000 compared with the seven painstaking years it took to rise from 7,000 to 8,000.
The Footsie’s year-to-date performance is one of the best in global stock markets. It has outperformed other well-known benchmarks such as the S&P 500, the Nikkei 225 and the CAC-40, with the DAX-40 in Germany one of the few peers to have eclipsed it. This outperformance of the S&P 500, should it be sustained, is pretty rare.
FTSE 100 index performance year-to-date.
The Footsie has only outdone the U.S. benchmark twice over the course of a year — in 2016 and 2022 — since the eruption of the global financial crisis 18 years ago. That reflects not only the dynamism and growth potential of the S&P’s constituents, chiefly the tech sector, but also the Footsie’s over-weighting in what are perceived by many investors as stodgier, defensive sectors, such as financials and consumer staples, and highly cyclical sectors such as energy and mining.
Accordingly, even after the recent performance, it is still sitting on a price/earnings multiple only just above its long-term average of 15 whereas the S&P — which, we should not forget, also hit a record last week — still trades on a multiple of almost 30.
Those ratings reflect the very different factors that have driven returns. While capital appreciation has driven just over two-thirds of the S&P’s total return over the years, roughly half of the Footsie’s total return has come from dividends.
The attachment of U.K. investors to dividends, something regularly disparaged as ‘coupon clipping’ down the years, is pronounced.
The Footsie’s solid showing last week was for similar reasons to the rallies elsewhere: relief at the U.S. achieving a deal with Japan over tariffs and optimism that something similar can be achieved with the European Union, although the latter has proved disappointing, at least so far as European equity markets have been concerned.
But there have been other, broader factors also at play during 2025.
The Footsie’s heavy gearing toward defensive stocks has played well this year as investors seek a shelter from Trump-induced volatility. There is also a lot of anecdotal evidence that it has benefited from some investors taking their money outside the U.S. — something that was particularly evident in the first four months of the year and summed up in the expression, which first appeared in the Wall Street Journal on May 19, the ‘ABUSA (Anywhere But USA) trade’.
And there have been important boosts for individual sectors, most notably defense, following commitments from a number of Western governments to raise defense spending.
U.S. President Donald Trump and Prime Minister Sir Keir Starmer arrive at Trump International Golf Links on July 28, 2025 in Balmedie, Scotland.
Wpa Pool | Getty Images News | Getty Images
Rolls-Royce, the aircraft engine manufacturer which also has a substantial defense business, has seen its shares rise by 75% so far this year. BAE Systems, the U.K.’s biggest defense contractor, is up 59% since the beginning of the year. The pair are now respectively the sixth and 11th biggest companies in the index.
Specific elements on the day the Footsie hit its most recent record last week included strong earnings updates from a host of constituents, most notably Reckitt, the household products group; Howden Joinery, the kitchen and joinery supplier and Lloyds Banking Group.
Even BT, a serial disappointment, rose sharply after quarterly results proved no worse than expected. That day also saw a decline in the pound — a factor that often benefits the index because Footsie constituents derive four-fifths of their earnings overseas, mainly in U.S. dollars and euros.
This was a point not greatly appreciated by some investors until the U.K. voted to leave the EU on June 23, 2016, and the pound fell by 10% against the greenback in a matter of hours.
Initially, the Footsie fell sharply, in line with other U.K. assets. However, as realization dawned that a weaker pound translates into higher earnings from overseas revenues, the index rallied and, a week later, it was some 2.6% higher than it had been before the referendum.
And this, in turn, leads to probably the most significant fact lost on many ordinary British investors. The Footsie is commonly perceived to be a barometer of U.K. economic — and, certainly, corporate — health.
Antofagasta, a Chilean copper miner; Fresnillo, a Mexican silver miner; Mondi, a global leader in paper and packaging with 100 production sites around the world but none in Britain; and Ashtead Group, a plant and tool hire company that derives more than 90% of its earnings from the U.S., where it trades under the name Sunbelt Rentals — the name it will take when it moves its primary stock listing early in 2026.
Even a number of businesses traditionally seen as quintessentially British to the extent that they have (or have had) the word in their company moniker, such as BP, BAE Systems and British American Tobacco, derive the majority of their earnings outside the U.K.
Of the 20 biggest companies in the Footsie, only Lloyds Banking Group and NatWest Group, another lender, make the majority of their earnings in the U.K.
It did not always used to be this way.
At its launch, 41 years ago, the Footsie was full of companies that made the majority, if not all, of their sales and profits in the U.K., including a clutch of domestically oriented brewing, pub and hotel operators in Scottish & Newcastle, Bass, Whitbread, Grand Metropolitan and Allied Lyons; two flat pack furniture and joinery companies in Magnet & Southerns and MFI; and a whole host of then U.K.-focused retailers, including Burton Group, House of Fraser, Sears (no relation to the U.S. retailer of the same name), British Home Stores, Marks & Spencer and Great Universal Stores.
