Despite the recent stock market rally, many FTSE 100 shares continue to trade significantly below their levels from a year ago. The lead index currently trades around 10% down on its pre-coronavirus level. Therefore, there may be opportunities to buy high-quality businesses while they trade at low prices.
Furthermore, the index has a long track record of growth. This could mean it offers further opportunities to make a worthwhile total return in the coming years. Certainly after what has been a volatile year for many investors.
FTSE 100 shares with total return prospects
Of course, identifying which FTSE 100 shares have strong total return prospects over the long run isn’t an exact science. All shares come with a significant amount of risk compared to many other mainstream assets. There’s never any guarantee of any return in future. And there’s also the risk of losing money on an investment in the stock market.
However, at the present time, many of the risks facing the world economy may be priced into the valuations of large-cap shares. Certainly, forecasts can prove to be very wrong. However, many leading economists, such as those from the World Bank, estimate that the world economy will deliver strong growth as coronavirus risks recede.
This may provide opportunities for today’s undervalued shares to deliver improving financial performances that are reflected positively in their stock prices.
Past performance of large-cap shares
The past performance of FTSE 100 shares is often overlooked by investors when deciding how to apportion their capital. For example, the index currently trades at a similar price to where it was over 20 years ago.
However, in that time it’s paid a generous dividend. Furthermore, its performance since inception in 1984 is relatively strong. Its capital growth and reinvested dividends equate to an annualised total return in excess of 8% at its current price level.
Although such returns aren’t guaranteed in future, the past performance of the index suggests it can deliver impressive returns. Certainly compared to other popular investment destinations – including other equity indexes.
Risks from buying large-cap shares
While FTSE 100 shares are deemed risky, they may be more stable than smaller companies. For example, they could have more robust balance sheets due to their size. What’s more, they may be less dependent on a small number of customers for their sales. Given the uncertain economic outlook, they may offer less risk that makes them more attractive on a long-term basis.
As such, now could be the right time to start buying FTSE 100 stocks for the long run. Their low valuations, track record of growth and size and scale advantages could allow them to outperform other popular assets in the coming years. Certainly after what has been a very challenging period for many investors.
