Most of my portfolio is invested in individual UK stocks but I also have exposure to the US via the Vanguard S&P 500 UCITS ETF.
I buy individual FTSE 100 companies in the hope of generating more dividends and growth than I’d earn by simply tracking the index, but I don’t feel so confident about buying individual US stocks. Hence the tracker.
I do hold one UK tracker, the Vanguard UK All-Share Index Unit Trust, which I bought after transferring some legacy company schemes into a self-invested personal pension (SIPP).
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This gave me instant stock market exposure while I set about the task of populating my SIPP with UK stocks. My timing was good as the FTSE All-Share dipped when I bought my tracker on 7 July. So far I’m up 16.45%.
Should I keep tracking the FTSE All-Share?
I’m pleased with that, but I’m even happier with the Vanguard S&P 500 UCITS ETF, which I bought on 22 September last year. It’s up 33.24%.
As a benchmark, the FTSE All-Share is up 9.03% over 12 months while the S&P 500 is up 35.54% over the same period.
This isn’t surprising. The US stock market contains the most exciting companies in the world, led by Magnificent Seven tech giants like Apple, Nvidia, and Microsoft. Yet this stellar past performance makes me wary.
Today, the S&P 500 trades at a hefty price-to-earnings ratio of 38.16. That’s more than double the FTSE All-Share’s modest P/E of 14.2.
Making this trade would involve selling low and buying high, when I normally try to do the opposite. So here’s what I’m going to do instead.
I’ll still sell my FTSE All-Share tracker. Why? Because I’m fully invested and need some cash. And the last 18 months have shown that my biggest successes have come not from trackers but individual UK shares.
As an example, shares in Just Group (LSE: JUST) are up 70.25% since I bought the FTSE 250 insurer almost one year ago. I found that particularly gratifying because I ran the rule carefully over the stock before purchasing it.
The Just Group share price crashed in July 2018 after a Prudential Regulation Authority consultation into the equity release market forced the board to set aside extra capital to cover its lifetime mortgage products.
Just Group shares are beating the US index
The consultation fizzled out, as consultations often do. Yet the Just share price failed to spark into life. So I took my chance.
In August it posted a bumper first-half with a 44% increase in underlying operating profit to £249m, amid stronger new business sales, increased recurring profits, and improved operational efficiency. The Just balance sheet looks solid with a capital coverage ratio of 196%.
As with every stock, there are risks. Just Group sells annuities, and sales have spiked as rising interest rates mean they pay more income. Once rates fall, sales may reverse. The stock has a low trailing yield of just 1.51% and dividends have been patchy, as this chart shows.
Chart by TradingView
Just still looks incredibly cheap, with a price-to-earnings ratio of just 4.88. I’d rather use the proceeds from my FTSE All-Share tracker sale to buy great value UK stocks like this one, than a potentially overpriced S&P 500 tracker.
