Are UK shares the best investment on the planet right now? I’d be forgiven for thinking so after I saw the FTSE 100 shoot past its all-time high to above 8,000 last month.
But the country is also battling a cost-of-living crisis, while a recession looms just over the horizon. So which way will the market head next?
Personally, I’m bullish on UK shares for 2023. And the reason is because of the types of company we have in this country.
The Footsie outperformed in 2022
The FTSE 100 – the hundred largest companies listed on the London Stock Exchange – is considered a ‘defensive’ index. That means those companies tend to perform as well or better in tough economic conditions.
It’s plain to see this by taking a look at last year. In 2022, a tough year for most markets, the FTSE 100 outperformed its equivalents like the US S&P 500, the German DAX 40 and the French CAC 40.
| FTSE 100 | S&P 500 | DAX 40 | CAC 40 |
| +2.9% | -19.4% | -12.4% | -9.5% |
It saw nice returns in a horrid year for investors worldwide. So what kinds of companies on the Footsie do I like the look of for 2023?
A ‘mature market’ is a tonic for tough times
One company that looks strong right now is financial services firm Legal & General (LSE: LGEN). This is a huge £15bn market cap company that has stood the test of time, being in operation since 1836.
Crucially, the company provides services that are needed whatever the economy is doing. In tough times, people still need pensions and insurance products, and that’s what makes it a ‘defensive’ company.
But not only that, the company’s size and age means it operates in a ‘mature market’. This is important because although there’s less room for growth, there’s more of a focus on returning cash to shareholders by dividends.
And in Legal & General’s case, shareholders currently receive a weighty 7.3% payout. So a £1,000 stake in the company would return £73 per year, and 10 years at the same dividend would increase my stake to over £2,000.
Although it must be pointed out that dividends aren’t guaranteed and ‘defensive’ stocks can offer middling returns during good times. This is another reason why I try to hold a variety of company types in my portfolio.
But there’s one further reason why I’m planning to load up on Legal & General and other UK shares in 2023, and it’s the issue of inflation.
Unignorable inflation levels
The Consumer Price Index – a popular measure of inflation – has remained around or above 10% since July last year. If those rates persisted, they would take a wrecking ball to anyone’s cash savings.
A 10% inflation level for one year means my money is worth 9% less in terms of the things I can buy. If I kept my money in cash, I’d effectively lose 9% of it in one year. In seven years, I’d have lost 50% of my money. It’s like Warren Buffett famously said: “Inflation swindles us all”.
And this is one further reason why I think UK shares are what I need to invest in right now, simply to prevent the damage inflation could do to my savings.
