Since January 2016, returns from the FTSE 100 have badly lagged those from other major indices. The Footsie has climbed by about a ninth (11.6%) in five years. Over the same period, the US S&P 500 index has almost doubled, up by more than 93% and 1,800 points higher.
The FTSE 100 has struggled since 1999
I see two reasons for the FTSE 100’s sluggish performance since 2016. First, the Brexit vote in June 2016 led to years of political uncertainty before the UK and EU finally inked a deal only days ago. Second, the Footsie is packed with ‘old economy’ stocks in sectors such as banking, energy, natural resources and utilities. In this increasingly hi-tech world, investors have rejected these boring shares in favour of go-go tech stocks, where the US is king.
After three major market crashes since 1999 — in 2000-03, 2007-09 and spring 2020 — the FTSE 100 is lower today than it was in December 1999. Indeed, the Footsie first reached today’s levels (around 6,600 points) in late 1999. Over the past 21 years, the index has drawn what I call ‘the Big W’ as it almost halved, doubled, and halved again before rebounding. Furthermore, the index currently trades roughly 1,300 points below its record high of 22 May 2018 — down almost a sixth (16.3%).
The Footsie’s five biggest stars since 2016
Of the FTSE 100’s current members, 96 shares have been included for five years. Of these, 64 stocks have risen, while 32 have fallen in value. The gains for these 64 winners range from 0.1% up to a whopping 825.7%. The average increase across all 64 gainers is 126.8%, beating the wider index by over 115 percentage points. However, this mean average is heavily skewed by a group of 13 stocks that have all tripled or better in half a decade. These are the FTSE 100’s five top-performing shares since January 2016:
- Anglo American 825.7%
- Ocado Group 726.9%
- EVRAZ 617.9%
- Scottish Mortgage Investment Trust 360%
- JD Sports Fashion 296.9%
In first place, with its shares almost 10 times as valuable (+825.7%), is global miner Anglo American. Anglo digs up and sells metals (platinum, copper, nickel and iron ore), as well as coal and diamonds. In second place is online grocer Ocado, with a gain of almost 727%. Though Ocado shares have tumbled more than £5 from their record high above £29 in September, I still see them as hugely over-valued.
The bronze medal goes to global steelmaker and miner Evraz, which mostly operates in Russia, Ukraine and North America. Evraz’s biggest shareholder is Roman Abramovich, owner of Chelsea FC. Fourth place goes to SMIT, an investment trust whose heavy exposure to US mega-tech stocks has made it a top performer in the fund universe. The fifth FTSE 100 star is JD Sports, a retailer known for selling sportswear, leisurewear and outdoor clothing.
Which star would I buy today?
Although I like the look of Anglo, its shares are a little bit too pricey for me right now. Ocado is great at scaling up losses as it grows, so it’s definitely not for me. Given the bubble in US tech stocks, SMIT is also off my list. Finally, JD Sports is a great business, but I’m steering clear of retailers until the economy improves. Hence, my pick for 2021 and beyond among these FTSE 100 stars is Evraz. With a dividend yield exceeding 9.2%, I’d stick these shares into my ISA to generate a chunky tax-free income!
