Some Stocks and Shares ISA investors choose to allocate their entire £20k annual limit to the FTSE 100. With its reputation for stability and an 8% average long-term return, this makes sense.
So, what if I’d done the same at the start of 2024? How much would I have so far this year?
The return
The iShares Core FTSE 100 UCITS ETF (LSE: ISF) is one of the most popular tracker funds in the UK. This exchange-traded fund (ETF) mimics the performance of the 100 largest firms on the London Stock Exchange.
Since the turn of the year, this fund is up 6.4%. So I’d have £21,280 on paper. Not bad.
However, the Footsie is also known for its generous dividends. If we include those, the total return is 9.6%.
My hypothetical return year to date would be around £21,920.
How about the S&P 500?
Is that any good? I’d say it’s not bad, considering it’s above the long-term historical average.
Of course, the year isn’t over yet, so there’s time for it to pull back (or go higher). It’s a coin toss which way it’ll head, with optimism on interest rate cuts being tempered by rising geopolitical tensions and worries around a US recession.
One thing to note about the FTSE 100 is that it tends to lag the S&P 500. Year to date, the US’s blue-chip index is up around 21%, including dividends, largely due to surging artificial intelligence stocks.
Clearly, the S&P 500 is winning hands down again!
Valuation concerns
I don’t invest in index trackers. Instead, I pick individual US and UK shares to try and beat the market. While this approach is admittedly a bit riskier, it can also be more rewarding.
Right now though, US shares are highly valued. Indeed, the average S&P 500 stock trades for a price-to-earnings (P/E) multiple of about 28. This compares to a P/E ratio of just 13.5 for the FTSE 100.
Moreover, the S&P 500 offers a paltry 1.3% dividend yield versus a Footsie average of 3.5%.
Given this situation, I’d be very careful buying US-listed stocks right now. Many of my favourite holdings, including Shopify, Ferrari, and Intuitive Surgical, look overvalued.
This doesn’t mean I’ll sell them. But I won’t be investing more money at today’s pricey valuations.
A discounted hedge fund
However, a possible compromise might be found in Pershing Square Holdings (LSE: PSH). This is a FTSE 100-listed investment trust that holds predominantly US shares.
As of August, Pershing Square’s top positions were Universal Music Group, Hilton, Alphabet, and Chipotle Mexican Grill. These are top-notch companies with significant competitive advantages.
However, the portfolio only contains nine stocks! This high concentration makes it riskier than most other investment trusts.
The trust acts as an investment vehicle to access the high-conviction strategies of Bill Ackman’s hedge fund (Pershing Square Capital Management). He has a stellar track record, which has helped the FTSE 100 stock surge 137% over the past five years.
Yet the shares are trading at a huge 26% discount to the fund’s net asset value (NAV). In other words, I can invest in the stocks in Pershing’s portfolio for 26% less than their current market value, indicating great potential value.
I’d consider buying more shares with spare cash.
The post If I’d put £20,000 into the FTSE 100 at the start of 2024, here’s what I’d have now appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
With a P/E ratio of 3.4, is the cheapest stock on the FTSE 100 index a bit of a bargain?
Billionaire Bill Ackman goes bargain hunting: 2 stocks he bought for his FTSE 100-listed fund
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Ferrari, Intuitive Surgical, Pershing Square, and Shopify. The Motley Fool UK has recommended Alphabet, Intuitive Surgical, and Shopify. 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.
