FundView Market Index
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The FTSE 100 Index
Since its introduction in 1984, the FTSE 100 index of the UK's 100 largest companies has grown from an initial value of 1000 to over 7500 in mid-2017. During this time there have been some remarkable peaks and alarming falls that have shaken the business and investing community. However, if the raw index values are compared to the growth of the UK economy (GDP at market prices), the long term picture is of a more stable market that has shown no significant upward or downward drift.
More on the link between the stock market and the economy
A statistical analysis of the ratio of the FTSE 100 to GDP reveals a near normal distribution of values over the lifetime of the index - the ideal normal distribution is shown superimposed in green over the actual data in the figure below.
The actual data deviates from the ideal at the upper end of the values and represents the effects of three major events; market deregulation and subsequent collapse on 'Black Monday' in 1987, the dot-com bubble from 1997 to 2001, and the run up to the 2008 credit crisis. Each of these three events are now readily seen as aberrations in the valuation of the stock market and are justifiably discounted from any model of future market valuations.
The classic bell-shaped curve of the Normal Distribution shown in green can be simply described by its mean and standard deviation. This doesn't mean that the future value of the FTSE can be predicted with any certainty - it does however, make it possible to determine the chances of the index achieving a particular value at some point in the future.
Using the Data
The FundView Market Index is key to assessing the past performance of investment funds by determining the sensitivity of each fund to market changes, viewing the performance that the investment would have achieved in a stable market, and then determining the Risk/Return potential of each fund taking account of today's market level and future potential market values.