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The FTSE 100 index of main British shares has hit a report excessive this week.
For the reason that begin of the yr, the index has moved up by 9%. That will sound modest, however it’s barely higher than the 7% recorded thus far this yr within the US by the S&P 500.
Nonetheless, may the FTSE 100 be getting forward of itself? In that case, now may be a great time for me to allocate extra of my portfolio to S&P 500 shares as a substitute of UK shares.
The UK market may nonetheless be low-cost
Really, 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 intention 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, forex actions may additionally work in opposition to me – and the greenback has been risky this yr. The reverse can also be true, in equity: such trade fee shifts would possibly work in my favour.
However the primary motive maintaining me from shopping for extra S&P 500 shares than FTSE 100 ones for my portfolio proper now’s the straightforward one in all 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 software in terms of valuation.
Earnings can fall. A excessive debt load would possibly imply that even with a low P/E ratio a inventory is a price lure.
On high of that, a decrease P/E ratio for the FTSE 100 total in comparison with the S&P 500 doesn’t imply that particular person shares inside it essentially have engaging valuations.
That stated, I feel some do. For instance, one FTSE 100 share I feel traders ought to contemplate in the mean time is insurer Aviva (LSE: AV).
It may not seem to be an apparent discount. This week the Aviva share value hit its highest degree for the reason that 2008 monetary disaster.
Nonetheless, I see it as a well-run, worthwhile firm with a confirmed enterprise mannequin and important money technology potential. That helps it to fund a beneficiant dividend, with the yield at present standing at 5.6%.
Aviva decreased its dividend per share in 2020 however has since been rising it steadily. It was the UK’s largest insurer even earlier than its latest Direct Line acquisition and has sturdy manufacturers and lengthy underwriting expertise.
I see integrating Direct Line as a danger. Its efficiency had been shaky within the years earlier than the takeover and the merger integration could take in a number of time from Aviva executives. Over the long term, although, I see Aviva as an organization with ongoing potential.
