Big news: the UK’s elite FTSE 100 index celebrated its 40th birthday yesterday. The Footsie started on 3 January 1984, quickly replacing its forerunner, the FT-30 index.
The index tracks the values of the 100 largest companies listed in London. Every quarter, relegations to and promotions from the mid-cap FTSE 250 index can happen, based on market values.
The FTSE has flopped lately
From its inception to about 2011, the UK’s main market index often matched the US S&P 500 index, occasionally trailing by wide margins during market bubbles. But for the last 13 years or so, the Footsie has been a damp squib.
Here’s how each index in the UK and US have performed over four recent timescales:
| FTSE 100 | S&P 500 | |
| One month | 2.3% | 3.3% |
| Six months | 2.2% | 6.2% |
| One year | 1.3% | 23.5% |
| Five years | 12.4% | 86.5% |
My table clearly shows how the US index has comprehensively beaten its British counterpart over all four periods, ranging from one month to five years.
One clear trend was the S&P 500’s growth following the global financial crisis of 2007-09. Since 6 March 2009, the index has skyrocketed by a whopping 590.9%, turning $1,000 into $6,909. Meanwhile, the Footsie has only doubled over the same period.
The S&P looks toppy to me
Then again, the US market’s massive rise in recent years has left it looking rather pricey to me. At present, it trades on a premium rating of 21.6, delivering a modest earnings yield of 4.6%.
By contrast, the FTSE 100 is almost as cheap as it’s ever been. It trades on a lowly 10.4 times earnings, producing an elevated earnings yield of 9.7% a year.
What’s more, the Footsie is the clear winner for income. It offers a forecast dividend yield of 4.2% a year for 2024. That’s almost three times the 1.5% yearly cash yield from the US index.
The above performance figures exclude dividends, which would boost the Footsie’s yearly returns by a few percentage points. Therefore, on a total-return basis, the UK index isn’t as far behind as it seems.
The UK market’s deep value
With the S&P 500 looking almost twice as expensive on fundamentals as the FTSE 100, why does my family keep most of our portfolio in US stocks?
To quote my investing hero, billionaire philanthropist Warren Buffett: “Never bet against America.” Since the Brexit vote in mid-2016, the vast majority of our wealth has been invested in US stocks, which have done us proud.
Also, with US stock returns thrashing those from the UK, going all-in on America has been a winning bet for more than a decade. But that might just be set to change.
Currently, I see deep value in individual FTSE 100 stocks, especially in unloved sectors such as banking, insurance, mining, oil & gas, consumer goods, and telecoms. That’s why my wife and I currently own 16 individual FTSE 100 shares and six FTSE 250 stocks.
As an old-school value investor, I intend to hold on to these stakes for as long as possible. That’s despite the fact that value investing based on fundamentals has underperformed go-go growth stocks for far too long. Perhaps this year will finally be the one where my FTSE 100 optimism pays off, as happened in 2022!
