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The FTSE 100 index of main British shares has hit a report excessive this week.
Because the begin of the 12 months, the index has moved up by 9%. That will sound modest, however it’s barely higher than the 7% recorded thus far 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 an alternative of UK shares.
The UK market might nonetheless be low cost
Truly, I’m not certain 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 aspect of the pond. Like Warren Buffett, I purpose to stay to my “circle of competence” when shopping for shares. I do personal some American S&P 500 shares, however except for 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 international investor within the US market, foreign money actions might additionally work towards me – and the greenback has been risky this 12 months. The reverse can also be true, in equity: such alternate charge shifts may work in my favour.
However the primary cause protecting me from shopping for extra S&P 500 shares than FTSE 100 ones for my portfolio proper now’s the straightforward certainly 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 trying to find bargains
Now, a P/E ratio is just one instrument with regards to valuation.
Earnings can fall. A excessive debt load may imply that even with a low P/E ratio a inventory is a worth entice.
On prime 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 take into account in the meanwhile is insurer Aviva (LSE: AV).
It may not seem to be an apparent cut price. This week the Aviva share worth hit its highest stage for the reason that 2008 monetary disaster.
Nevertheless, I see it as a well-run, worthwhile firm with a confirmed enterprise mannequin and important money era potential. That helps it to fund a beneficiant dividend, with the yield at the moment standing at 5.6%.
Aviva diminished 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 robust manufacturers and lengthy underwriting expertise.
I see integrating Direct Line as a threat. Its efficiency had been shaky within the years earlier than the takeover and the merger integration could take in quite a lot of time from Aviva executives. Over the long term, although, I see Aviva as an organization with ongoing potential.
