The FTSE 100 has had a rough start to the year and is currently down over 9.2% since the beginning of January. Economic headwinds around the globe pushed the index down to below 5,700 points and the index is now in an official bear market. Tracker funds are becoming an important tool for retail investors as a cheap and stress-free way to follow the market. Today I’m exploring whether the FTSE 100 will close this year above 6,250 and thus make a gain for the year.
Technical analysis
If you look at a long-term chart of the FTSE 100 even to an untrained eye an obvious pattern emerges from the data. Three peaks in 1999, 2007 and 2015 at around 6,900 are followed by two troughs in 2003 and 2009. After the high of last year the FTSE 100 is falling fast. If history were to repeat itself, we could see a third trough of around 3,700 in the next few years. Personally I think it’s unlikely to fall that far but 5,000 points isn’t out of the question if we continue to face global economic problems and stalling growth.
Commodities-heavy
The FTSE 100 is a commodity-heavy index with resource giants such as Royal Dutch Shell (LSE: RDSB) and BHP Billiton (LSE: BLT). This means that the index is naturally more vulnerable to swings in oil and other commodity prices. In the last 18 months this has dragged the index down even though many of the companies in the index are operating well and making good profits. However, this does also work in the opposite direction, if the oil price does turn this year, which many believe it will, then the FTSE 100 would be pulled up by the large oil companies. If this puts you off then an alternative could be the FTSE 250, it has fewer commodity companies and is therefore affected less by commodity prices.
FTSE 250
Personally I think the FTSE 250 offers a better alternative for investors. Since the FTSE 250 began in 1999 it has increased by over 180% while the FTSE 100 has fallen by 4%. This just illustrates that the FTSE 250 is a growth index and investors should invest there over the larger blue chip index. Another reason is that the FTSE 250 is more representative of the British economy, which is performing very well with unemployment at record lows. This could lead to further gains by the FTSE 250 as the smaller British businesses outperform the larger multinational companies that make up the FTSE 100.
Tracker funds are a low cost way to play the markets and should be considered by all types of investors for a portfolio. These products offer a stress-free way to play the markets that can be invaluable to investors holding for the long term. For brave investors, buying tracker funds now and holding for a number of years can create fantastic returns and is much less risky than picking a few stocks from a market.
