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Why Your Portfolio May Decrease Even If The FTSE 100 Index Has Gone Up

A rare phenomenon has occurred in the last fortnight where the FTSE 100 has gone up, yet the value of many investment portfolios has gone down.

Applewood Independent hasn’t seen this type of divergence often in the last 30 years, and the good news is that we don’t expect it to last.

If you’re an investor, you’ll most likely be concerned at worst, and puzzled at best.

In this article, we’re going to explore, in broad terms, why the value of your portfolio may not have increased in line with the FTSE 100.

The background

The FTSE 100 (the 100 biggest companies in the country) index is usually a good indicator of how the UK stock market is performing; if the FTSE 100 has gone up, typically investments follow suit.

You might think it’s reasonable to assume that if 100 companies make up the FTSE, then each one has a 1% influence, but that’s not the case; although the FTSE has gone up overall in recent weeks, a lot of its constituent parts have gone down. 

The FTSE is swayed by a company’s cap size (the total value of a company’s shares of stock). If you take the UK’s largest FTSE company, Shell, its sway is considerably larger than many of the other 99 companies. If, for example, it was 50 times bigger, it would have 50 times the influence; if it was to increase by 20%, the FTSE would be on its way up. 

What’s been happening recently?

Financial institutions are some of the biggest components of the FTSE 100 index; their share prices have risen, and the price of oil has gone up (as reflected at the petrol pumps). In addition, the other biggest companies in the FTSE have all performed well recently, which has, inevitably, affected the FTSE 100. However, most of the other companies have gone down. This has a knock-on effect on the value of investment portfolios.

Even the UK large-cap investment funds haven’t risen in the same way as the FTSE 100 has.

It’s a rare situation that investors find themselves in, but hopefully now it’s also clear why it can happen, and why it’s not likely to be a common occurrence going forward. This type of phenomenon is one reason that we recommend that every investor creates a diverse investment portfolio (see our earlier blog How Do We Invest Your Money So We Don’t Lose It All?).

Additional factors to consider

At Applewood Independent we regularly meet with fund managers we know and trust; we take into consideration all the potential factors that could negatively (or positively!) impact on our investors’ portfolios. There is always more going on behind the scenes, including rate of inflation and interest rates.

Before making any investments with your hard-earned cash, it’s worth speaking to an independent financial adviser who can support you to make the right decision for you, based on your objectives and risk tolerance.

Hopefully this article has given you valuable insight into why the FTSE has gone up while portfolio value may have decreased, and why financials that are usually closely correlated don’t always correlate!

The big picture never tells the full story; the devil is always in the detail when it comes to finance!

If you’d welcome more of our expertise and experience to support you to make good investment decisions, please email alex@applewoodindependent.co.uk or david@applewoodindependent.co.uk

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.

Past performance is not a guide to future performance.