Picture supply: Getty Pictures
Each the primary FTSE index and the S&P 500 have hit contemporary report highs inside the previous few weeks. This presents UK traders with an fascinating dilemma. With new money to place to work, does it make extra sense to stay to the UK inventory market, or is it value shopping for AI high-flyers listed throughout the pond? Right here’s the place my head is at proper now.
The case for the FTSE 100
The obvious purpose to root for the FTSE 100 is on the premise of the price-to-earnings (P/E) ratio. It’s at the moment at 17.7, versus 31.3 for the US inventory market. Due to this fact, despite the fact that each indexes are close to report ranges, I’d argue the FTSE 100 might rally additional. It is because the ratio is much less stretched than within the US. Not solely that, however there’s a big distinction within the common P/E ratios.
One other issue is the dividend yield. The typical yield of the FTSE 100 is over double the S&P 500. So let’s say that we do get a correction in international shares earlier than the tip of the 12 months. If an investor has portion of UK holdings, the earnings funds from dividends may help to cushion any potential unrealised losses from the share worth actions. This may not look like a giant deal, however it could possibly definitely be a useful aspect when interested by the place the actual worth is.
Capital progress and dividends
One instance of a choose that makes this level effectively is Video games Workshop (LSE:GAW). The inventory is up 30% over the previous 12 months and has a dividend yield slightly below 4%.
Though the corporate has performed effectively, the P/E ratio is 26.05, under the common for the S&P 500. The dividends have been growing for the previous few years, consistent with the rising earnings per share.
I feel the enterprise can keep its momentum, largely due to its deeply loyal fan base and a novel, immersive universe that offers it pricing energy. As we’ve seen from latest product drops, customers are keen to pay premium costs for its miniatures, video games, paints, and associated IP-based merchandise.
The excessive revenue margins it enjoys (particularly in licensing and IP extensions) give it leverage to scale profitably even when prices rise or competitors will increase considerably.
The corporate has warned of doable revenue hits as a consequence of tariffs (particularly within the US) and better prices. That might be a danger going ahead.
Don’t neglect the S&P 500
Regardless of the worth enchantment of the FTSE 100, there are causes to love the US. The S&P 500 presents publicity to the worldwide leaders in AI, tech, and healthcare, areas which have generated sustained compounding returns in recent times. Traders merely can’t replicate this within the UK.
The US economic system has confirmed much more resilient than the UK’s, with decrease recession danger and better productiveness progress. That’s one other enchantment to diversify a portfolio away from the UK.
General, I feel the UK is healthier worth proper now, however traders can look to construct a portfolio with some publicity to each, getting virtually the very best of each worlds.
