More reasons to steer clear of the FTSE 100

Ed Miliband has been putting the frighteners on FTSE 100 investors. It’s yet another reason to steer clear of Britain’s ‘flagship’ index.

I wrote here a few weeks ago that the FTSE 100 is a pretty no-growth place to invest.You might be getting good dividends from many of its heavyweight sectors, but ten years from now you might see those dividends as little more than the slow return of your own capital.

I mentioned at the time that various sectors from banks to utilities were likely to see any future growth severely inhibited by changes in regulation.

I am not the only one who is nervous about this kind of thing. James Clunie, the manager of Jupiter's Absolute Return Fund is "very scared". He tells the FT today that "on a scale of one to ten I am an eight or nine". All because of Ed Miliband.

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Over the last year, Miliband has outlined a variety of proposals to have a go at what he calls "predatory capitalism".

There is to be a freeze on energy prices; a break-up of the banks; a clampdown on payday lenders and betting shops; and a plan to seize undeveloped land being held in housebuilders' land banks. Clunie also thinks that we should consider the possibility that a Miliband government might even nationalise the energy industry. "It is not a zero possibility."

Look at this as one list and you can see the problem: it is market-moving stuff the kind of thing that "leads to fear and requires discounting". Should you worry? Probably.

Only this morning, shares in Centrica fell nearly 3% after the current energy secretary wrote to the regulators suggesting they have a good look at the profits of the big six energy companies, and even suggested that the firm might need to be split up.

All good reason, perhaps, to start to think about how much exposure to have to sectors at risk from state interference via UK income funds or FTSE 100 trackers.

PS Another article in today's FT extends the argument against investing in banks. According to PwC, the huge amount of capital available to asset management firms globally is likely to see them pushing into the shadow banking sector at the expense of real banks. The latter will end up becoming "more like utilities". There isn't much growth in that.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.