Andrew Van Sickle editor@moneyweek.com
Better too late than never. Other major stockmarkets have raced to new record peaks in recent years while our blue chips have lagged. This week the FTSE 100 crept past its all-time high set in February 2023. But the longer-term picture is hardly encouraging. The index finished the 1990s at 6,930. Since then it has gained just 15%. America’s technology-heavy Nasdaq Composite index has quadrupled over the same period. The blue-chip S&P 500 index is up from 1,500 to 5,200. France’s CAC-40 has climbed by a third. Germany’s DAX index has more than doubled.
Don’t forget dividends
The DAX, unlike most other major indices, is a total-return index, measuring reinvested dividends in addition to capital appreciation, rather than just the former. Still, if we compare total returns in sterling terms from 31 December 1999 to 2 April 2024 we still lag other major markets, except Japan. The MSCI USA index has risen sixfold, with its Swiss counterpart not far behind. The MSCI UK index has not even tripled.
The reasons for our lacklustre performance are well rehearsed, and the array of measures needed to rectify it will not happen in a hurry. Still, one of the eternal truths of investing is that buying at low valuations is the key to healthy long-term returns (the converse applies too, see page 4), while comparatively high yields in the British markets mean we are being paid to wait for the outlook to brighten.
Investors should also pay more attention to Europe. Its equity markets have a reputation for being largely made up of lumbering dinosaurs, but this view is out of date, as a note from the Royal Bank of Canada pointed out this week. The classic old-economy sectors such as financials, telecoms, utilities, energy and materials jointly comprise no more than a third of the MSCI Europe ex-UK index.
Faster-growing industries such as healthcare, technology and industrials now account for 57% of the index, up from 37% in 2011. Europe’s major companies also tend to make the most of their sales overseas, so they are not excessively hampered by the slow eurozone economy, where the business cycle in any case appears to be turning up. Valuations are also far more reasonable than in the US, where the shine is coming off the Magnificent Seven. Tesla’s poor results this week mean the stock has now fallen by a third this year, while Apple has slipped by 12%.
Gold, on the other hand, has retained its sh
