I try to focus on the long-term as an investor. Investing trends can be a helpful indicator of what might influence investment returns years from now. A lot of investing trends could help – or hurt – FTSE 100 shares in years and decades to come. Here are three I’m keeping an eye on when deciding how to build my portfolio.
FTSE 100 shares as takeover targets
Recently, there has been a lot of interest in buying British companies. Bidders have expressed interest in FTSE 100 members such as Morrisons.
The reason for that is that private equity groups and strategic buyers have been running the slide rule over the London market and think they see value. With some sectors out of favour, share prices have performed weakly in recent years. That has helped make those shares attractive now to buyers looking to deploy large piles of cash.
That can be positive for investors. If a bid materialises, it can boost a company’s share price. Even if a bid doesn’t materialise, a company that seems undervalued could reward a shareholder over time. However, there is never a guarantee of a successful bid. Sometimes a company that seems undervalued is actually priced to reflect possible problems, such as declining profitability.
ESG investing and the FTSE 100
Environmental, social, and governance investing is becoming ever more popular.
Such investors are looking beyond merely financial metrics and considering the wider impact of the companies in which they invest. That trend could benefit some FTSE 100 shares which trumpet their ESG credentials.
For example, consumer goods manufacturer Unilever makes a lot of noise about its environmental and social initiatives. What I like about these FSTE 100 shares as an ESG choice is that such green initiatives could actually boost the appeal of Unilever products to its customers. So instead of being an additional cost, the company’s ESG approach could help boost profits.
But ESG investing can also pose risks to companies. For example, ESG investors often see miners and energy companies as environmentally harmful. The increased prominence of ESG investing could lead to share prices falling if some investors shun such stocks the way they do tobacco firms.
Increasing popularity of index trackers
Many investors do not choose shares themselves. Instead, they put their funds into a collective investment vehicle such as a unit trust or mutual fund.
Traditionally professional stock pickers managed these vehicles. But such fund managers can be costly. Fees eat into returns. That helps explain the rise of funds that simply track a leading index such as the FTSE 100. Due to their largely automated nature, these can be run cheaply. Those cost savings equate to lower fees passed on to investors.
As index trackers grow in popularity, that leads to more demand for FTSE 100 shares from the tracker funds. That can help to sustain their share price. Before a share is elevated to the FTSE 100, tracker funds buying it in large quantities can lead to its price rising. I keep an eye on news about which shares will be elevated to the FTSE 100 index.
