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.
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.
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.
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.
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.
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.
More from Alan Oscroft