Picture supply: Getty Pictures
After years of underperformance versus the S&P 500, the FTSE 100 is lastly having its day within the solar. Actually, make that many months within the solar as a result of the UK’s blue-chip index has been sturdy for a while now.
That is clearly nice for UK traders, a lot of whom have their ISAs and SIPPs full of FTSE 100 shares. However is that this an Indian summer season that’s set to come back to a frosty finish? Or have we entered a brand new monetary local weather altogether?
What’s happening?
Thus far in 2026, the FTSE 100 has gained 6.5% whereas the S&P 500 has dipped 0.9%. Nonetheless, Footsie corporations pay far greater dividends on common, and after we issue these in over the previous 5 years, the 2 indexes are nearly stage on a complete return foundation.
That is some turnaround, although the US index remains to be the longer-term winner, primarily because of the large beneficial properties from tech shares like Microsoft, Apple, Broadcom, Nvidia, and Tesla. The highly effective digital revolution that has swept the globe has created inventory market juggernauts akin to company nations.
Nonetheless, after two and a bit years of the AI growth, traders are getting nervous about whether or not these corporations can really monetise the expertise quick sufficient to justify their large capital outlays and valuations.
In consequence, cash has been shifting out of Silicon Valley and into ‘old economy’ shares like banks, utilities, oil majors, miners, and supermarkets. These pay dividends and commerce at less expensive valuations.
In fact, these are precisely the sorts of shares writers right here at The Motley Idiot have been championing for years. They’ve seemed basically undervalued for ages and in addition paid beneficiant dividends.
Furthermore, these non-tech corporations are seen as AI-resistant. That’s, they’re ‘heavy-asset, low-obsolescence’ (HALO) corporations insulated from technological disruption.
World traders are lastly beginning to get up and see the (HALO) mild!
Can it proceed?
In fact, the inventory market goes in cycles, so rotations from progress to worth shares is nothing new. If traders flipped again in the direction of high-growth shares, the FTSE 100 might begin underperforming once more (no less than relative to the S&P 500).
Nonetheless, the fast improvement of AI expertise — significantly with autonomous brokers — continues to spook traders. So the rotation in the direction of FTSE 100 shares nonetheless has legs, for my part.
Subsequently, traders might think about one thing just like the iShares Core FTSE 100 UCITS ETF (LSE:CUKX). As we are able to see under, this index tracker has actually taken off over the previous few months.
This accumulating model of the ETF mechanically reinvests any dividends paid by the businesses (like Shell, Authorized & Basic, and HSBC) again into the fund. Presently, the FTSE 100 provides a 3% dividend yield, so reinvesting this alongside any share value beneficial properties helps the fund develop quicker over time.
To my thoughts, there’s a rock-solid mixture of high-quality dividend shares within the FTSE 100, starting from HSBC and Tesco to Aviva and Admiral.
As talked about, the FTSE 100 might all the time exit of vogue once more. So I’d solely think about a Footsie index tracker as a part of a diversified ISA portfolio that additionally had a number of progress shares in there.
