Since 1999, the FTSE 100 has produced some pretty disappointing capital gains for investors, if at all.
The FTSE 100’s golden years
When I was young, it was a great time to buy shares. The FTSE 100 – introduced in January 1984 at 1,000 points – soared over 16 years. During the dotcom boom, it hit a closing high of 6,930 on 31 December 1999. Over 17 years, it rose nearly sevenfold.
But millennium madness wore off, dotcom boom turned to bust, with the FTSE 100 crashing to 3,287 in March 2003. Then it raced to a post-2000 closing high of 6,732 in June 2007. Thanks to the global financial crisis of 2007/09, the next crash was brutal. In March 2009, the FTSE 100 hit a closing low of 3,512.
FTSE 100’s noughties comeback
The Noughties brought decent capital gains for investors, notably in 2010 (9%), 2013 (14.4%), 2016 (13.9%) and 2019 (12.1%). The FTSE 100’s all-time closing high was a record 7,877 in May 2018.
Until this year, it had traced what I call ‘The Big W’, plunging and rising twice. It was 7,542 on 1 January, climbing to 2020’s peak of 7,675 on 17 January. Then came the Coronavirus crisis and oil crash. This trashed the FTSE 100, which closed at 4,994 on 23 March.
Index down around 10% in 21 years
The index is now hovering around 6,262 so is down 9.6%, or almost a tenth, this millennium. That’s tough for investors who bought at or near the various market peaks. Of course, no one buys only at the absolute top, but you take my point.
Then again, dividends ranging from 3.5% to 7.5% a year boosted investors’ returns. Yet the FTSE 100 has serially underperformed among the world’s largest market indices.
Because of the risks of coronavirus, a slow economic recovery and a no-deal Brexit (plus the November US election and US-China frictions), I’m not a big fan of the index today. Indeed, I would avoid multiple sectors, including airlines, travel companies, consumer goods and services, and real estate.
I think now is a time for stock-picking – and what better way to avoid picking dogs than to pick blazing stars?
Bunzl: great British success story
Bunzl is such a dull business that most folks have never heard of it. Yet it’s been a UK-listed company since 1957, with its shares selling for 73 years.
It completely reinvented itself several times throughout its 166-year history, as it evolved to suit the times. Today, this FTSE 100 star – valued at over £7.6bn – is a world-class and widely admired global distribution and outsourcing company.
At their current price of 2,265p, the shares aren’t cheap, but cheap often means nasty. Bunzl shares are expensive relative to the FTSE 100 because it’s a high-quality business run by excellent management. Quality always costs, but it’s also worth buying.
Since 2014, yearly revenues, post-tax profits, earnings per share and dividends have risen every year. That’s five years in a row of improving returns for shareholders. Growth and consistency on this scale is worth paying a little extra for. What’s more, Bunzl distributes PPE (personal protective equipment), which is in high demand in the fight against Covid-19,
At 2,265p, the shares are up 4.1% in the past 12 months, having dodged the Covid-19 market collapse. They trade on a historic price-to-earnings ratio of 21.6 and offer a modest dividend yield of 2.2%.
Note that Bunzl has scrapped its final dividend for 2019, but these regular cash payouts will be back. After all, it had previously raised its dividend for 27 years in a row. That’s why I’d buy this FTSE 100 star today.
