If sentiment over the last couple of months is a guide, the FTSE 100 could see a far more bullish 2024. The question I’m sure stock-pickers like me are asking is, which of its members could deliver market-beating returns?
If given just three choices, I’d put my faith in this lot.
Ready to rocket?
Scottish Mortgage Investment Trust (LSE: SMT) holders have endured a tricky couple of years. I know because I’m one of them.
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It’s not hard to fathom why. As interest rates zoomed up to combat higher inflation, investors shunned disruptive growth shares in favour of cheap blue-chip stocks paying dividends.
This trend has shown signs of reversing in 2023. Indeed, the prices of tech titans like Microsoft, Apple and Alphabet have been on a charge.
There’s an argument for saying that the recovery in these stocks is largely done. I’m inclined to agree (although no-one knows for sure). However, an important caveat is that Scottish Mortgage’s biggest holdings deviate from the main market indexes. For this reason, its ability to beat the FTSE 100 won’t rest on all of the ‘Magnificent Seven’ tech stocks continuing to perform.
The trust also has a lot of cash invested in private companies. They’re harder to value and could turn out to be duds. But the market tends to become far more amenable to them when general sentiment is improving.
I’m hoping for a bumper year here.
Positive momentum
Shares in UK housebuilders have been rallying in recent weeks and the possibility of the Bank of England cutting rates in 2024 is the clear catalyst. I think Taylor Wimpey (LSE: TW) could keep doing well.
Naturally, none of this is set in stone. A longer-than-expected wait for a cut could mean that share prices might endure a bout of volatility from an impatient market. Regardless, just being in a position to buy a property will remain a tough ask, especially for the young.
Still, I’m increasingly optimistic that we might witness a revival in the housing market in the summer. Taylor Wimpey shares also come with a big dividend yield (6.5%), albeit one only just covered by expected profit.
In reality, I won’t be buying here for now because I’m already exposed to the sector via my holding in FTSE 250 constituent Persimmon.
But having bought one of its properties recently, I’ll be watching Taylor Wimpey’s performance with great interest.
Bounce incoming?
Since spreading my money around the market is as important in good times as well as bad, my final pick to outperform its index is luxury goods retailer Burberry (LSE: BRBY).
This might seem a strange choice. News of slowing sales sent the share price crashing in November. It doesn’t look like many investors are keen to jump back in either. That’s a bit ominous.
But I see this as an opportunity. The stock hasn’t traded this low in three years. And as economic clouds begin to clear, we could see discretionary spending rise again.
Longer term, a burgeoning middle class (especially in key regions like Asia) will be keen to buy into status-enhancing brands. Burberry’s brand remains as desirable as ever.
Throw in a decent and secure yield and I reckon the investment case looks compelling. Now I just need to find the cash to take advantage.
