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The FTSE 100 is a wealthy searching floor for elite UK shares. Conceived in Thatcher’s Britain, it rapidly grew to become the nation’s main inventory market indicator. As we speak, it’s straightforward to achieve broad FTSE 100 publicity through low-cost index funds.
However how has the Footsie carried out in comparison with the S&P 500 lately? Ought to traders take into account on the lookout for particular person shares with the potential to outpace Britain’s premier benchmark?
Let’s discover.
Index returns
14 Might 2019 was a giant date for index traders. On this present day, asset administration large Vanguard launched exchange-traded funds (ETFs) monitoring the FTSE 100 and S&P 500.
Together with dividend reinvestments, £10,000 put into Vanguard’s FTSE 100 UCITS ETF (VUKE) at its inception could be value £15,065.21 at the moment. That fifty% achieve appears first rate at first look!
Nonetheless, there’s a fly within the ointment. Vanguard’s S&P 500 UCITS ETF (VUSA) considerably outperformed its UK counterpart, rising 133% over this time interval.
People who invested their money within the US ETF would have £23,336 at the moment. These juicy compound beneficial properties add up over time.
Winds of change?
Regardless of shining on dividends, the UK index lacks cutting-edge development shares. Know-how shares signify simply 1% of the FTSE 100 ETF. That’s dwarfed by a 32.5% allocation for Vanguard’s US tracker.
Primarily, a tech increase stateside has powered a colossal bull run in US shares, whereas homegrown equities have struggled to maintain tempo. It’s an uncomfortable dynamic for British traders to grapple with.
However worry not, FTSE 100 followers! I’ve some excellent news. Vanguard’s forecast for US shares’ 10-year annualised return is simply 3.9%. Relating to UK shares, anticipated beneficial properties are nearly double at 6.7%.
Enticing valuations for British equities sit on the crux of the fund supervisor’s logic. The Footsie’s common price-to-earnings (P/E) ratio of 16.4 compares favourably to a 27.5 a number of for the S&P 500. Whether or not this is sufficient to cease the UK inventory market’s relative decline stays to be seen.
A possible FTSE 100 gem
Index funds warrant a spot in most portfolios, particularly for these getting began in investing. Nonetheless, it’s additionally worthwhile to think about particular person FTSE 100 shares, though this brings larger dangers.
One which deserves contemplation is 3i Group (LSE:III), a closed-ended funding fund specializing in non-public fairness and infrastructure.
The 3i Group share worth has superior 316% in 5 years. These mighty beneficial properties can primarily be attributed to a single place accounting for 70% of the corporate’s portfolio, Dutch low cost retailer Motion.
This unlisted agency operates 2,750 shops throughout 12 European international locations, promoting low-cost family items. With restricted numbers of SKUs and spartan shops, Motion goals to undercut grocery store competitors by maintaining overheads down. What’s extra, 80% of merchandise are priced beneath €5.
Progress has been spectacular, pushed by Motion’s aggressive growth past Europe’s northern shores and its quick turnover technique. 3i Group initially invested within the enterprise in 2011 for €279m. That place was value a whopping €17.1bn in December 2024.
Nonetheless, I’ve some issues. There’s an apparent focus danger in 3i Group’s portfolio. That’s particularly worrying if Motion’s development slows down. A reliance on fixed growth might trigger issues if new retailer openings start to wane.
That mentioned, even when 3i Group’s a one-trick pony, its big return on funding to date should be admired.
