A set of huge, well-established, and mature companies. Put like that, the FTSE 100 may not sound prefer it has a lot of a recipe for progress.
However the blue-chip index’s efficiency over the previous yr belies that impression.
In only one yr, it has moved up by 24%. That implies that it now stands 66% above the place it was 5 years in the past.
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Is the FTSE 100 getting forward of itself?
However whereas the FTSE 100 has moved up by nearly 1 / 4 over the previous yr, does that make sense?
It’s a markedly higher efficiency than the US S&P 500, which has moved up 15% in 12 months.
That US index nonetheless trades on a better price-to-earnings ratio than the FTSE 100. However because it has a larger assortment of high-growth firms in its ranks, I feel that is smart.
Given the widely lacklustre financial efficiency of the UK economic system over the previous yr, one attainable rationalization for the booming FTSE 100 is discount searching. Its valuation has been – and continues to be – decrease than its key US counterpart.
With buyers changing into more and more nervous about US financial coverage apparently being made on the hoof, they’ve been casting round for protected havens – or bargains. That has helped appeal to some cash into the FTSE 100.
However the UK index and its US equal are various things. Every must be valued by itself deserves, as I see it – not in relative phrases.
At its present worth, I don’t suppose the FTSE 100 is essentially overvalued — however I don’t see it as a discount.
On the lookout for particular person alternatives
That doesn’t notably hassle me as an investor, as a result of I don’t plan to purchase any FTSE 100 tracker funds within the close to future.
What I’ve been doing, although, is constant to spend money on particular person members of the index. Whereas the index general doesn’t look low cost to me, some shares inside it do.
For instance, at present (23 February) has seen the share worth of JD Sports activities (LSE: JD) transfer up, after the sports activities retailer introduced a share buyback.
However regardless of that, the share worth is down 1% over the previous yr – and has greater than halved previously 5 years. Given the efficiency of the FTSE 100 throughout that interval, that may be a woeful displaying.
JD Sports activities has invested closely in progress, each by opening new retailers and likewise shopping for up entire chains in abroad markets. Whereas that has added income, the affect on profitability has to this point been tougher to find out.
Time will inform whether or not it was cash nicely spent. The share worth efficiency suggests the market sees an ongoing danger that it was not.
However in the end I reckon the sports activities retail market will reward scale. The corporate has robust manufacturers, a great relationship with its key provider Nike, a loyal buyer base, and confirmed enterprise mannequin.
I’m involved that any robust financial pullback might damage demand for dear trainers. Nevertheless, I see the share as attractively valued and proceed to carry it.
