Picture supply: Getty Photographs
I feel traders with a long-term focus ought to be trying fastidiously at UK shares proper now. To my thoughts, the relative low cost on provide in the meanwhile is large.
A technique of how engaging share costs are is by evaluating them with bonds. And on the subject of the FTSE 100, I feel the distinction is sort of placing.
Shares vs bonds
Basically, shares provide extra potential reward at the price of greater danger. A bond return can’t go up, however a authorities defaulting on its money owed is much less doubtless than an organization going bankrupt.
Evaluating the costs of shares and bonds offers an concept of how traders are fascinated by the inventory market. Particularly, it offers an indication of whether or not they’re optimistic or pessimistic.
Proper now, the FTSE 100 trades at a mean price-to-earnings (P/E) ratio of 18.2, which means an earnings yield of 5.49%. And that’s nicely above the place authorities bond yields are.
| Asset | Present Yield |
|---|---|
| FTSE 100 | 5.49% |
| 10-year gilt | 4.54% |
| 30-year gilt | 4.38% |
That implies traders are specializing in the dangers with UK shares proper now. There’s nothing intrinsically improper with this, however it’s price noting that it’s not taking place throughout the board.
The S&P 500, in contrast, trades at a P/E a number of of round 29. And meaning the implied earnings yield is 3.5%, which is under the present returns supplied by US authorities bonds.
| Asset | Present Yield |
|---|---|
| S&P 500 | 3.50% |
| 10-year US authorities bond | 4.20% |
| 30-year US authorities bond | 4.82% |
I feel this implies that traders see a whole lot of danger and never a whole lot of reward on the subject of UK shares proper now. However – at the very least in some instances – this seems to be like a mistake to me.
Extra pessimism
Bunzl‘s (LSE:BNZL) been one of many FTSE 100’s worst performers of 2025 (to date). The inventory’s down 35%, however I feel this can be a large overreaction from the market.
Tariffs have been a giant problem for the distributor this yr – and anybody who thinks we’ve seen the final of them may need one other assume coming. However the agency’s additionally had its personal points.
A badly executed shift to focusing by itself merchandise brought about the lack of a significant buyer within the US. Regardless of this, the inventory nonetheless seems to be far too low cost to me.
Bunzl shares presently have a 3.5% dividend yield and the agency has a superb document of accelerating this. Over the past decade, it’s grown by a mean of seven% a yr. If that continues – and I feel there’s an excellent probability it does – the inventory ought to provide a greater return than a UK gilt from the dividend alone. And there’s much more to the agency than this.
Bunzl makes use of lower than half of its internet earnings to finance its dividend. It reinvests the remaining into progress alternatives and I’m anticipating this to spice up returns even additional for traders.
Too good to refuse?
Bunzl’s already a giant a part of my portfolio, however I feel it’s an above-average firm buying and selling at a below-average valuation. And I don’t see it as notably shut in both case so is price contemplating.
That is really why I like UK shares usually. Whether or not it’s bonds or different shares, I feel there are many attention-grabbing alternatives for traders searching for them.
