Last month, the FTSE 100 index of leading British shares hit a new all-time high.
In the weeks since then, however, it’s gone into reverse. The index is around 3% lower than the high it hit last month.
Now, 3% might not sound like much. But over the past five years, the FTSE 100 has grown by only 11%. Within that context, a 3% fall in a matter of weeks is actually quite large.
What’s going on – and how can I best position my portfolio in response?
Long, lazy summer
I think a lot of this might simply be a manifestation of the old stock market adage “sell in May and go away”.
While that may sound simplistic, springtime often sees a cluster of full-year results. This year, some of those came in strongly and pushed up share prices.
But as the City gets quieter and thoughts drift towards a relaxing summer, activity and prices in the stock market can also lose some momentum.
Valuations continue to look cheap
Rather than trying to time the market, the approach I take is simply to look for value at all times.
While the FTSE 100 index seems to be cooling its feet after hitting a new record, that does not tell me anything about individual shares within it.
Over the past year, for example, Rolls-Royce has more than tripled. By contrast, raincoat maker Burberry (LSE: BRBY) has experienced its own patch of stormy weather and lost over half its value.
I am not buying the index as a whole, but rather I have a portfolio of individual shares. So, whether or not the FTSE 100 is losing momentum at the moment, I continue to look out for what I think could be bargains.
Hunting for shares to buy
Could Burberry be just such a bargain? It has an iconic brand, global fan base, premium product pricing, and a dividend yield of 6.3%.
Last month, the fashion house released its full-year numbers and they were far from chic.
It held the dividend flat, meaning that for now that fairly juicy yield stays. Revenue declined 4%, which is not great but equally I do not think is catastrophic.
But it was at the bottom line, not the top line that things grew more alarming. Reported operating profit slid 36%. Attributable profit fell more, at 45%. Free cash flow crashed 84%.
Slowing demand in the luxury sector hurt Burberry and its brand struggled to maintain traction with fashionista shoppers.
Possible FTSE 100 bargain
I am torn here.
The yield is attractive, the brand has underlying strengths even if it has been performing weakly. The company has plans to improve performance.
On the other hand, demand at the pricy end of the rag trade may get worse before it gets better. This could turn out to be a high-yield bargain, but it may equally end up being a falling knife.
So, for now, I will keep on looking for other FSTSE 100 shares I could add to my portfolio.
