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Each the primary FTSE index and the S&P 500 have hit recent document highs throughout the previous few weeks. This presents UK buyers with an attention-grabbing dilemma. With new money to place to work, does it make extra sense to stay to the UK inventory market, or is it price shopping for AI high-flyers listed throughout the pond? Right here’s the place my head is at proper now.
The case for the FTSE 100
The obvious cause to root for the FTSE 100 is on the premise of the price-to-earnings (P/E) ratio. It’s at the moment at 17.7, versus 31.3 for the US inventory market. Due to this fact, despite the fact that each indexes are close to document ranges, I’d argue the FTSE 100 may rally additional. It is because the ratio is much less stretched than within the US. Not solely that, however there’s a big distinction within the common P/E ratios.
One other issue is the dividend yield. The typical yield of the FTSE 100 is over double the S&P 500. So let’s say that we do get a correction in world shares earlier than the top of the yr. If an investor has a superb portion of UK holdings, the revenue funds from dividends may help to cushion any potential unrealised losses from the share worth actions. This won’t look like a giant deal, however it might actually be a useful aspect when fascinated about the place the true worth is.
Capital development and dividends
One instance of a decide that makes this level effectively is Video games Workshop (LSE:GAW). The inventory is up 30% over the previous yr and has a dividend yield slightly below 4%.
Regardless that the corporate has finished effectively, the P/E ratio is 26.05, beneath the common for the S&P 500. The dividends have been rising for the previous few years, according to the rising earnings per share.
I feel the enterprise can keep its momentum, largely due to its deeply loyal fan base and a singular, immersive universe that provides it pricing energy. As we’ve seen from latest product drops, customers are keen to pay premium costs for its miniatures, video games, paints, and associated IP-based merchandise.
The excessive revenue margins it enjoys (particularly in licensing and IP extensions) give it leverage to scale profitably even when prices rise or competitors will increase considerably.
The corporate has warned of doable revenue hits as a result of tariffs (particularly within the US) and better prices. That may very well be a threat going ahead.
Don’t overlook the S&P 500
Regardless of the worth enchantment of the FTSE 100, there are causes to love the US. The S&P 500 presents publicity to the worldwide leaders in AI, tech, and healthcare, areas which have generated sustained compounding returns lately. Buyers merely can’t replicate this within the UK.
The US economic system has confirmed way more resilient than the UK’s, with decrease recession threat and better productiveness development. That’s one other enchantment to diversify a portfolio away from the UK.
General, I feel the UK is best worth proper now, however buyers can look to construct a portfolio with some publicity to each, getting nearly the very best of each worlds.
