£5,000 invested in the FTSE 100 index tracker over the past 3 years is now eligible…
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The investigation has been ongoing for three years FTSE 100 index. Before this, it was only 16% higher than before the global financial crisis of 2007/08.
Of course, the index has been issuing dividends, adding significantly to the overall return. But compared to the tech-heavy S&P 500Footsie’s stock returns have been pretty poor until recently.
Therefore, it has received many unpleasant names, including the ‘Jurassic Park reference’ and the ‘Sideways reference’. I even remember one article calling it a ‘corporate nursing home’, because of the old economy banks, miners, and oil majors. Wow.
But what a difference the last three years have made. During this period, the FTSE 100 has kicked into high gear, generating an annualized return of 13.56% (including reinvested dividends).
To put this into context, it means that a £5,000 investment made three years ago in the FTSE 100 index tracker would now be worth around £7,320 (the amount of the fee). That is a significant improvement over previous years.
What has changed?
If you look at the chart, there has been a noticeable jump higher in the last two years. Off the top of my head, I can think of a few things that could have contributed to this:
- President Trump’s volatile and unpredictable policymaking
- Interest rates are falling
- Rotation from some US growth stocks to UK value stocks
- Rising energy and commodity prices (oil and mining stocks benefit)
- Bank stocks are back in fashion
Another strong trade that has taken hold in the last year or so is the favorite of HALO (heavy asset, low obsolescence) stocks. Those are companies with tangible assets that aren’t at risk of being overtaken by artificial intelligence (AI).
So that would be ‘Jurassic Park’ type companies like the defense giant BAE Systems (up 52% in two years) and supermarket supremo Tesco (+66%).
Probably the last HALO company National Gridpower transmission monopoly. You cannot physically interrupt the transmission of electricity through a chatbot.
Indeed, the proliferation of data centers to support AI is likely to make the National Grid more relevant than ever. Usually a sleeper stock, it is now up 34% over the past two years.
Broken software
The other side of this HALO trade has been software and data companies, which have sold the most over the past 12 months. These include Rightmove (-39.4%), Autotrader (-38%), Sage (-25.3%), and Experian (-25.6%).
One more RELX (LSE:REL), which I think is an FTSE 100 stock to consider. It’s down 33% over the past year.
RELX sells data and analytical tools to professionals, including lawyers, scientists, and bankers. The biggest risk is that new AI models end up making this data worthless, potentially driving away customers and eroding pricing power.
However, a recent trade statement said: “RELX started the year well in all four business areas and continued to deliver strong revenue and profit growth, as well as strong new sales..”
Executives have been saying that AI is more of an opportunity than a threat, and its AI tools are attracting significant spending from clients, including its leading legal research platform LexisNexis.
After its crash, the stock is trading at just 17 earnings. All 15 City analysts who cover RELX rate it as Buy at 2,678p, with an average target price of around 30% above.
