The FTSE 100 is set for a makeover with an influx of new tech stocks

The FTSE 100 – the dullest index in the world – is about to reinvent itself as a host of new firms list on the market. The change is long overdue, says Matthew Lynn.

Anyone who invests in the FTSE 100 will have to get used to some new names over the coming year. The world’s dullest major index is about to get a tech makeover, with a series of floats of high-tech, internet-based companies.

The takeaway app Deliveroo, which has kept plenty of people going through lockdown, has just completed a round of fundraising that valued it at $7bn, ahead of an expected listing sometime in the spring. Checkout, the payments-processing start-up that is one of the most impressive tech firms in the UK, hit a $15bn valuation on its latest fundraising and is likely to look to list its shares soon. Revolut, the fast-growing finance app, is now valued at $20bn. If it lists its shares Monzo probably won’t be far behind it and neither will TransferWise. And Moonpig, the online greeting-cards firm, has revealed plans for a listing likely to be worth at least £1.5bn.

New life among the dinosaurs 

Critics will scoff that Moonpig is just a card company with a website (although 20 years ago you could have said Amazon was just a bookshop with online deliveries); that Revolut and Monzo are competing in a fiercely crowded marketplace where profits will be non-existent once the big players get their act together (although ten years ago you could have said the same about Netflix). Whatever your view, these are big flotations – most worth a lot more than the £4bn or so it takes to get into the index.  

Others may be on the way. The Hut Group, a web-based consumer goods retailer, is worth £7bn, but is not yet in the FTSE; fashion retailer Boohoo remains on the junior Aim market even though it is worth more than £4bn. Both could easily graduate to the FTSE over the next year. Right now there are only really two tech companies on the index – food delivery firms JustEat and Ocado. By the end of the year there could easily be eight or ten.  

That will liven things up. For the last two decades investing in the UK market has largely been a choice between the declining retailer, the shrinking oil giant, the embattled bank, or the tobacco conglomerate squeezing the last embers of profits from a dying industry. Hardly exciting. Ocado aside, there are barely any growth firms in the FTSE 100 (tech accounts for 27% of the S&P 500). It is hardly surprising it has done so poorly. 

The London market needs to ensure it attracts all those firms and that they don’t decide to list in the US instead, or that our departure from the EU doesn’t make a listing elsewhere in Europe more attractive. Assuming they happen, these initial public offerings will affect the FTSE in three ways. 

Here comes the flood

First, they will drive the performance of the index. While other markets have raced ahead, the FTSE has been stuck in a narrow range for two decades. The index is still below where it was on the opening day of 2000. The S&P 500 has gone from less than 1,400 in 2000 to 3,700 now, even if there have been some bumps along the way. If the FTSE had the same mix of growth firms that the S&P has, it would be hitting the 13,000 to 14,000 mark by now – not just bouncing between 6,000 and 7,000. 

Next, they will attract investors. One reason private individuals in the UK have given up on investment is because it is so dull and the returns miserable. Sure, they could invest elsewhere, but only hardcore specialists were ever likely to do that. With more exciting companies, more private money will pour into the market. Global institutions too will engage with the FTSE again. It wasn’t just Brexit putting them off. 

Finally, they will encourage more tech firms to float, creating a virtuous circle. Once a couple of major internet start-ups list, sparking the excitement that goes along with that, and so long as a few fortunes are minted, it will set an example that many others will want to follow. There are plenty of tech businesses now in the £1bn-plus range. A trickle could quickly turn into a flood. It is long overdue. The FTSE has been the dullest major index in the world for far too long now. A series of tech initial public offerings has the potential to transform it.

Recommended

Why we should scrap the Budget
Budget

Why we should scrap the Budget

The yearly Budget, big set-piece of British politics, encourages the very worst from the government, says Matthew Lynn.
24 Oct 2021
The charts that matter: bond yields turn back up and a new bitcoin record
Global Economy

The charts that matter: bond yields turn back up and a new bitcoin record

Bitcoin hit a new all-time high, while government bond yields turned back up. Here’s how that has affected the charts that matter most to the global e…
23 Oct 2021
Larry Fink: the undisputed king of Wall Street
People

Larry Fink: the undisputed king of Wall Street

Larry Fink survived two big financial crises and went on to build a massive asset manager, doing for investing what Henry Ford did for cars. He has hi…
23 Oct 2021
Cryptocurrency roundup: bitcoin hits a new record high
Bitcoin & crypto

Cryptocurrency roundup: bitcoin hits a new record high

In the week when bitcoin hit a new high, we look at what’s been going on in the world of cryptocurrencies this week.
22 Oct 2021

Most Popular

How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021