Dissecting The UK Market

Published in Investing on 26 January 2010

The UK market is concentrated in just a few key sectors.

If you've cast an eye over the companies listed on the London Stock Exchange, you can't have failed to noticed that they are classified into different sectors, depending on the nature of their businesses. The degree of overlap amongst the companies in a sector can be quite varied -- some sectors, for example the Mobile Telecommunications sector, comprise companies whose businesses are very much alike, while others, like the Support Services sector, cover a very mixed bag of all sorts of businesses.

Sectors

But despite some of the classifications being to some degree arbitrary, the sector split of listed companies is very useful, for a number of reasons. For investors who wish to diversify their portfolios across companies in a range of different businesses, having companies identified by sector makes the search a whole lot easier.

It also helps to tie the performance of the stock market to the economy as a whole, helping us to relate, say, the performance of Oil & Gas producers to world energy supply, prices, and consumption, and to compare the relative performances and valuations of different sectors. And conversely, if we believe certain sections of the economy are likely to prosper, we can more easily identify candidate companies that are likely to benefit.

Overview

Over the coming weeks we'll be taking an in-depth look at individual sectors, and today we'll start with a quick overview of the sectors and their relative valuations. The following table lists all of the sectors in the FTSE All-Share Index by weighting -- that is, in order of their relative values as a percentage of the entire index. 

SectorWeighting
(%)
No of.
companies
Oil & Gas Producers18.016
Banks12.75
Mining11.219
Pharmaceuticals & Biotechnology7.614
Mobile Telecommunications4.72
Tobacco3.92
Support Services3.258
Beverages3.04
Food & Drug Retailers3.06
Food Producers2.813
Equity Investment Instruments2.7156
Life Insurance2.79
Travel & Leisure2.635
Media2.524
Gas, Water & Multiutilities2.56
Household Goods & Home Construction1.911
Aerospace & Defence1.810
Financial Services1.831
General Retailers1.728
REITS1.315
Software & Computer Services1.223
Electricity1.13
Fixed Line Telecommunications1.06
Non-life Insurance0.912
General Industrials0.67
Industrial Engineering0.613
Oil Equipment & Services0.56
Health Care Equipment & Services0.47
Technology Hardware & Equipment0.39
Chemicals0.35
Personal Goods0.33
Real Estate Investment & Services0.325
Electronic & Electrical Equipment0.311
Construction & Materials0.211
Industrial Transportation0.19
Automobiles & Parts0.11
Forestry & Paper0.11
Industrial Metals & Mining0.13
Leisure Goods* 0.03
Alternative Energy* 0.01

 Source: Bloomberg      (* denotes less than 0.1%)

The All-Share currently consists of the top 600 or so largest companies traded on the main market (rather than AIM). The largest is worth nearly £120bn and the smallest is around £40m. So, that's quite a range to say the least.

Surprises?

There are perhaps one or two surprises in the table. Firstly, though the valuations of Oil & Gas producers have risen steadily over the past decade, their accounting for 18% of the entire value of the FTSE All-Share is really quite something (and some will be sad to see the Alternative Energy sector, with just one company, not even making 0.1%).

And it's also quite sobering to see just 40 companies making up nearly 42% of the value of the whole index.

The number of secondary investment vehicles, by which I mean the 156 companies of the Equity Investment Instruments (which comprises things like general investment trusts, etc) and the 15 real estate investment trusts (REITs) might come as quite unexpected to some.

Next time

When we examine individual sectors in future articles, as well as the FTSE All-Share, we will include the AIM 100 index. This consists of the top 100 companies listed on the Alternative Investment Market -- their market values range from £100m to around £2bn, so many of them are quite a lot larger than those included at the bottom end of the All-Share.

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