Can the FTSE 100’s survivors withstand the next recession?

Business people shaking hands

Launched in 1984, the composition of the FTSE 100 index is almost unrecognisable today compared to its initial formation. Some of the Footsie’s original companies no longer exist. Others have been demoted to the FTSE 250 or beyond. And of course, new shares have been added over the decades.

Yet, 18 FTSE 100 stocks stand the test of time. These companies have endured multiple economic downturns without ever leaving the UK’s flagship index in 38 years. As fears of a recession loom, let’s explore the outlook for this elite club of survivors.

The FTSE 100 survivors

The 18 ever-present Footsie shares include an array of dividend players, banks, commodities titans, supermarkets, consumer goods companies, and more besides.

Company 12-month return (excluding dividends)
British American Tobacco +22%
Barclays -10%
BP +25%
GlaxoSmithKline +18%
Land Securities +8%
Legal & General -11%
Lloyds -9%
NatWest +7%
Pearson -11.5%
Prudential -34%
Reckitt Benckiser -7%
RELX Group +7.5%
Rio Tinto -11%
Sainsbury’s -23%
Shell +42.5%
Smith & Nephew -26.5%
Tesco +11%
Unilever -16.5%
FTSE 100 -0.5%
Some company names above have changed over time due to rebrands

Reasons to invest

I consider many of the above to be solid investments in a recession due to their defensive qualities and histories of resilience during periods of economic turbulence. Looking at the dynamics of a likely recession ahead, there are particular things I like about this group of stocks.

For example, Barclays, NatWest and Lloyds shares should be well positioned to deliver good returns as interest rates rise despite underperforming over the past year.

In addition, oil majors Shell and BP are currently enjoying strong momentum, buoyed by sky-high prices with Brent Crude above $113 per barrel.

Finally, metals miner Rio Tinto and asset manager Legal & General are two of the top FTSE 100 dividend stocks, yielding 11.2% and 7.3% respectively. I consider high dividend yields to be especially attractive in times of soaring inflation.

Risks and missed opportunities

However, none of the investments above are risk-free. After all, Marks & Spencer was demoted to the FTSE 250 in 2019 after being a FTSE 100 stalwart since the beginning. I’m acutely aware of survivorship bias risk in making investment decisions.

Turning to the specific examples raised, a downturn in house prices could hurt the banks if mortgage defaults increase. The windfall tax on excess profits is a headwind for the energy giants. Plus, volatile commodity prices and new insurance pricing rules add uncertainty for Rio Tinto and Legal & General shares respectively.

It’s also worth noting that there’s an absence of tech stocks in the FTSE 100 generally, and zero in this group. I view tech as an important part of my diversified portfolio, even if the outlook is somewhat gloomy for this sector at present. For example, software company Sage was only admitted to the index in 1999.

Furthermore, top performers such as AstraZeneca don’t meet the definition due to its formation from a series of mergers and demergers.

Overall, I consider the FTSE 100 survivors good investments for a recession. Although there are no certainties in the stock market, I believe these shares are strong enough to endure. Indeed, I own some and many feature on my watchlist. However, I won’t ignore the opportunities offered by the remaining 82 stocks in the index on the basis of survivorship alone.

The post Can the FTSE 100’s survivors withstand the next recession? appeared first on The Motley Fool UK.

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Charlie Carman owns shares in AstraZeneca, British American Tobacco, and Lloyds. The Motley Fool UK has recommended Barclays, British American Tobacco, GlaxoSmithKline, Lloyds Banking Group, Pearson, Prudential, RELX, Reckitt plc, Sage Group, Sainsbury (J), Smith & Nephew, Tesco, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.