29 June 2022
Many day traders seem to focus on US markets with a particularly strong information technology sector. But, excluding the NASDAQ - solely based on the technology sector - do the sector weightings vary much between mainstream UK and US indices?
The following table shows the current sector weightings of the FTSE 100, FTSE 350, Dow Jones Industrial Average and the S&P 500:-
|
Sector |
FTSE 100 |
FTSE 350 |
DJIA |
S&P 500 |
|
Communications |
4.31% |
2.26% |
3.9% |
9.6% |
|
Consumer Discretionary |
6.87% |
10.52% |
13.6% |
11.8% |
|
Consumer staples |
17.91% |
15.62% |
7.8% |
6.2% |
|
Energy |
9.48% |
11.6% |
2.8% |
3.7% |
|
Financials |
17.82% |
20.99% |
16.5% |
11.5% |
|
Healthcare |
11.73% |
11.71% |
18.3% |
13.3% |
|
Industrials |
12.16% |
10.61% |
14.2% |
8.0% |
|
IT |
1.41% |
1.29% |
21.7% |
28.1% |
|
Materials |
13.39% |
8.90% |
1.1% |
2.6% |
|
Real Estate |
1.38% |
2.81% |
|
2.6% |
|
Utilities |
3.53% |
3.69% |
|
2.6% |
Before we look at these figures in more detail, it is crucial to be aware of the make-up of each of the indices listed above:-
FTSE 100 - This index consists of the largest 100 companies listed on the London Stock Exchange by market cap. This is one of the most recognised stock indices in the world.
FTSE 350 - This index is an amalgamation of the FTSE 100 and the FTSE 250, giving the largest 350 companies traded in the UK based on market capitalisation.
DJIA - The Dow Jones Industrial Average (DJIA) is perhaps the world's most recognised stock market index. It consists of the 30 most prominent companies listed on stock exchanges in the US – not necessarily the largest.
S&P 500 - The S&P 500 is particularly popular for those trading options on US stock market indices. As the name suggests, this index takes in 500 large companies listed across different US stock exchanges.
As you'll see from the table, both UK indices are heavily biased towards financials and consumer staples. However, the two major sectors in the US are IT and healthcare, followed by financials and industrials. Even though the US has a relatively large real estate market, this only accounts for 2.6% of the S&P 500.
The technology has long been a favourite of day traders because of its relative volatility. This is caused by several factors such as:-
• Early-stage loss-making companies are heavily impacted by market sentiment
As you can see, the FTSE 100 IT sector weighting is just 1.41% and an even more disappointing 1.29% for the FTSE 350. Consequently, it is not difficult to see why the UK is struggling to attract companies such as ARM Holdings to base their primary listings in the UK. However, even though this injects an enhanced degree of volatility into US markets, it is also attracting listings from technology companies worldwide.This has created very deep trading liquidity in the sector.
Various committees are in charge of determining specific sector weightings for individual indices. These weightings should reflect changes in the business arena and emerging sectors. The fact that the UK seems so far behind the US in terms of technology exposure is concerning. Relatively high exposure to the energy sector, and consumer staples, will not have helped the UK indices in the short term.
Conversely, a change in market sentiment has impacted technology shares, leaving the US far more exposed than the UK.
We appreciate that many short-term/day traders focus on the technology sector, where sentiment and underlying trends can significantly impact share prices. Our ongoing investment in low latency high-tech dealing platforms allows us to deliver fast and efficient dealing services wrapped up in a competitive charging structure.
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