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FTSE 100 shares proceed to be the most well-liked vacation spot of capital amongst British traders, particularly now that the US inventory market is beginning to look a bit shaky.
Regardless of incoming financial headwinds created by tariffs, many American shares, notably within the tech sector, are reaching all-time highs, creating concern amongst consultants of a possible correction, and probably even a crash in a number of the extra excessive projections.
With that in thoughts, does investing within the FTSE 100 over US shares truly make sense? Right here’s what historical past tells us.
Historic correlation
The FTSE 100 has a vastly completely different sector make-up in comparison with a US index just like the S&P 500. The latter is closely weighted in direction of know-how shares, whereas the UK’s flagship index is extra concentrated in healthcare, finance, and vitality.
This broader diversification throughout extra defensive sectors is why the FTSE 100 has traditionally been much less risky. And but, throughout a inventory market crash, it stays simply as vulnerable to sharp declines as different main indexes:
- In 2020, it collapsed by round 30% within the area of only a few weeks, similar to the S&P 500.
- In 2008, each the S&P 500 and the FTSE 100 fell by roughly 50%.
- In the course of the dotcom bust of 2000 to 2002, each indexes had been additionally down by round 50%.
Put merely, each UK and US shares are extremely correlated throughout occasions of widespread panic. But the story is sort of completely different throughout milder market corrections.
As we’ve lately seen with the inflation-driven 2022 correction, FTSE 100 shares truly vastly outperformed the S&P 500, delivering flat outcomes versus a 20% drawdown in America.
With out excessive concern spreading from one market to a different, the extra numerous and resilient composition of the UK index ends in decrease ranges of volatility. It additionally helps that with the majority of earnings truly coming from abroad, a weakening pound can create a beneficial tailwind.
The result’s that traders are sometimes capable of higher defend their wealth and generally even develop it.
Which shares to contemplate
Most consultants imagine {that a} US inventory market correction is at the moment much more possible than a full-blown crash. With that in thoughts, which FTSE 100 shares ought to traders be contemplating as a possible defensive funding?
For my part, the secular demand of large-cap healthcare enterprises like AstraZeneca (LSE:AZN) is an effective place to begin.
The group’s improvement pipeline places it in a number one place amongst most cancers pharmaceutical companies, with its current portfolio delivering spectacular double-digit development. On the similar time, administration’s lately introduced $50bn multi-year funding programme to develop its R&D and manufacturing capability may assist preserve its present trajectory into the long run.
After all, no funding, even essentially the most resilient-looking, is risk-free. Like many large pharma firms, AstraZeneca is going through a patent cliff with a number of blockbuster medication vulnerable to being replicated by generic producers.
New remedies from its pipeline will assist offset this impression, however that nonetheless entails important execution threat. Don’t neglect that growing new drugs is exceptionally difficult and costly. And there have been quite a few circumstances the place even essentially the most promising late-stage drug candidates fail to succeed in the market.
Regardless, for traders feeling nervous in regards to the US inventory market, investigating defensive companies like AstraZeneca and different FTSE 100 alternatives is worth it, in my view.
