Picture supply: Getty Photos
The FTSE 100 index of main British shares has hit a document excessive this week.
Because the begin of the 12 months, the index has moved up by 9%. Which will sound modest, however it’s barely higher than the 7% recorded up to now this 12 months within the US by the S&P 500.
Nevertheless, might the FTSE 100 be getting forward of itself? If that’s the case, now is perhaps an excellent time for me to allocate extra of my portfolio to S&P 500 shares as a substitute of UK shares.
The UK market might nonetheless be low cost
Really, I’m not positive that now’s a very good time to load up my portfolio with S&P 500 shares.
There are some sensible causes for that.
As a British investor, I do know extra about companies on this facet of the pond. Like Warren Buffett, I intention to stay to my “circle of competence” when shopping for shares. I do personal some American S&P 500 shares, however apart from well-known companies, it may be simpler for me to get a deal with on a FTSE 100 agency than an American one.
As a overseas investor within the US market, foreign money actions might additionally work in opposition to me – and the greenback has been unstable this 12 months. The reverse can also be true, in equity: such alternate fee shifts would possibly work in my favour.
However the primary purpose preserving me from shopping for extra S&P 500 shares than FTSE 100 ones for my portfolio proper now’s the easy considered one of valuation.
The FTSE 100 index trades on a price-to-earnings (P/E) ratio of round 15, in comparison with round 29 for the S&P 500.
Right here’s how I’m looking for bargains
Now, a P/E ratio is just one software on the subject of valuation.
Earnings can fall. A excessive debt load would possibly imply that even with a low P/E ratio a inventory is a price entice.
On high of that, a decrease P/E ratio for the FTSE 100 general in comparison with the S&P 500 doesn’t imply that particular person shares inside it essentially have enticing valuations.
That mentioned, I believe some do. For instance, one FTSE 100 share I believe buyers ought to think about in the meanwhile is insurer Aviva (LSE: AV).
It won’t appear to be an apparent cut price. This week the Aviva share value hit its highest degree because the 2008 monetary disaster.
Nevertheless, I see it as a well-run, worthwhile firm with a confirmed enterprise mannequin and vital money era potential. That helps it to fund a beneficiant dividend, with the yield presently standing at 5.6%.
Aviva decreased its dividend per share in 2020 however has since been rising it steadily. It was the UK’s largest insurer even earlier than its current Direct Line acquisition and has sturdy manufacturers and lengthy underwriting expertise.
I see integrating Direct Line as a danger. Its efficiency had been shaky within the years earlier than the takeover and the merger integration could absorb loads of time from Aviva executives. Over the long term, although, I see Aviva as an organization with ongoing potential.
