Should I ditch FTSE 100 stocks in favour of high growth S&P 500 shares?

Jon Smith looks at the outperformance in the S&P 500 over the UK stock market recently and considers where he should be investing.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The flag of the United States of America flying in front of the Capitol building

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the past year, there has been a marked difference in the performance of the FTSE 100 versus the S&P 500. The former is up by 9.5% over this period, with the latter up 19%. With UK investors like myself having the ability to easily buy US shares from across the pond, should I allocate more money to that area going forward?

The case for doing so

One of the sectors that has led growth over the past few years is technology. Looking forward, artificial intelligence (AI) is an offshoot of this area that is likely to carry the baton of being the hottest theme for the coming years.

When I look at companies that are at the forefront of this space, they are part of the S&P 500.

I own shares in Apple (NASDAQ:AAPL), so agree that if I want to get proper exposure to tech, it makes sense for me to buy those firms, listed on the S&P 500.

Apple shares are up 22% over the past year, as the company continues to push forward. At the worldwide developers conference it recently announced a new wave of AI tools that will be coming to the new iPhone and related products shortly. This shows how it’s able to monetise AI and harness it in a practical way.

The business is also appealing due to the stable cash flow and continued revenue growth. The latest results out from August showed Q2 revenue up 5% versus last year. It’s also translating down to the bottom line, with earnings per share of $1.40, up 11% from Q2 2023.

As a risk, the recent ruling against Alphabet on paying for search engine preferences isn’t a good look for Apple. As more information comes out, it could have reputational damage for both sides.

In comparison, the FTSE 100 isn’t known for tech firms, and doesn’t have many stocks that fit the bill at all.

The other side of the coin

The big argument for the FTSE 100 is that it offers me much better value than the US market. For example, the price-to-earnings ratio of the entire index is 14.7. This compares to 27.92 for the S&P 500. The lower the figure, the better value I’m getting as an investor.

Part of this is due to the fact that although there are some great individual companies listed in the UK, sentiment around the UK in general has negatively impacted investment. Factors including political uncertainty, Brexit, and a poor economic outlook have all had an impact. Yet this is unlikely to last forever, so I expect UK stocks to have a period in the limelight.

Another concern is that of a US recession this year. After a disappointing payrolls report earlier in August, the unemployment rate has risen to 4.3%. Some investors are now expecting the country to enter a recession before the end of 2024. If realised, this could cause the US markets to slide lower.

The best of both worlds

I own both US and UK stocks. Looking forward, I do think I’ll invest more in S&P 500 stocks, with a focus on tech. However, there are still plenty of undervalued ideas from the FTSE 100 that I’ll aim to purchase for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jon Smith has positions in Apple. The Motley Fool UK has recommended Alphabet and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on US Stock

Warren Buffett at a Berkshire Hathaway AGM
US Stock

Warren Buffett just bought and sold these stocks. Here’s why I don’t agree

Jon Smith takes a look at the recent regulatory filing for Berkshire Hathaway and Warren Buffett and comments on recent…

Read more »

US Stock

My favourite US growth stock’s up 33% this year. I think it’s just getting started

Edward Sheldon's taken a large position in this well-known S&P 500 growth stock. And so far, it’s working very well…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

ETFs are soaring! Here’s a star fund for Stocks and Shares ISA investors to consider

This exchange-traded fund (ETF) has risen 24% in value since last November. Royston Wild thinks it has room for significant…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
US Stock

This is a huge week for Nvidia stock

It’s a make-or-break week for Nvidia stock as the company is posting its Q3 earnings on Wednesday. Here’s what investors…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

At $320, is Tesla now a meme stock?

Since the summer, Tesla stock has shot skywards like a SpaceX rocket. But is it worth me taking the risk…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to invest £800? I’d use these 3 Warren Buffett principles!

Christopher Ruane shares three lessons he has learnt from investing guru Warren Buffett that he hopes can help him invest,…

Read more »

Young Caucasian girl showing and pointing up with fingers number three against yellow background
Investing Articles

3 stock market mistakes I’d avoid

Our writer explores a trio of things that can trip up investors who are new to the stock market. Each…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 incredible growth stocks that just soared 25%+!

This writer takes a look at a pair of top growth stocks that have rocketed 25% or more since the…

Read more »