Why I’m hoping that 2022 will be strong for this FTSE 100 exchange traded fund

Out of all the global indices, I believe the FTSE 100 is best positioned for a good year in 2022. I’m looking at this ETF as a way to capitalise.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Scene depicting the City of London, home of the FTSE 100

Image source: Getty Images.

I’m largely optimistic about the FTSE 100 going into 2022. The UK has one of the largest economies in the world and one of the highest Covid vaccination rates. In October, the IMF projected that UK economic growth would be 5% in 2022, which is among the highest in the developed world. This sets the backdrop for what could be a good year for the FTSE 100.

The flagship UK market index has underperformed many others in the developed world. However, with a low price-to-earnings (P/E) ratio and good dividend yield, 2022 might be time for the Footsie to surge.

Within the FTSE 100 there’s exposure to some world-class companies across several sectors. I think in particular pharmaceuticals and energy are likely to see a boost next year. For example, GlaxoSmithKline has had a good year in 2021. It is up around 15% year-to-date and 13% year-on-year. 

BP has had a strong year too, seeing a rise in its stock of over 36% and 27% year-on-year. I can see oil prices rising in 2022, which could lead to a further uptick in BP’s shares.

The ETF

I like these shares, but I’m aware that individual stock picks always come with risk. For my portfolio, I prefer to diversify to try to reduce that risk and invest in the FTSE 100 via an exchange traded fund (ETF). An ETF is a fund that tracks an index or sector, is usually low-cost and can be bought and sold like a share through most online brokers.

Most, if not all, of the major investment companies offer a FTSE 100 ETF and I’m spoilt for choice. I look at making my choice based on three factors: fund size, expense ratio and whether I want dividends or not.

The fund I’m interested in is iShares FTSE 100 (LSE:ISF). By size, it’s the biggest,at over £10bn and it’s the cheapest too, with an ongoing charge of 0.07%.

Although there’s a choice of whether to have an accumulation option (where my dividends are reinvested) or a dividend-paying option with this ETF, I prefer the income stream of the latter. Currently, the yield is 3.71%.

It’s also worth mentioning that this fund is consistently one of the most popular ETFs by trading volume in the UK. 

The risks

There will continue to be lots of risks in financial markets in 2022. A new Covid variant could easily cause a downturn as we briefly saw with the Omicron variant. A rise in interest rates could be a further catalyst for a crash.

Also, by investing in iShares FTSE 100, I’ll only get the market performance of the index, rather than the chance to outperform the market by picking individual stocks.

However, I hope that if I include this exchange traded fund in my holdings as part of a balanced portfolio, I can get good rewards next year. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Niki Jerath owns shares in iShares FTSE 100. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

2 of the best stocks to buy now with £500

I think that Berkshire Hathaway and Activision Blizzard are two of the best shares to buy today. I think they…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

I bought 10 cheap shares. Here’s what happened next

After recent price falls, we bought 10 cheap shares for extra passive income in future. This mini-portfolio offers a tasty…

Read more »

Close up view of Electric Car charging and field background
Investing Articles

Is now a good time to buy Chinese EV stocks as economic growth slows?

Chinese EV stocks tend to trade at a considerable discount to their US counterparts. And that's one reason I like…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

I’d happily start investing in today’s stock market – here’s why

The stock market has been moving up even as the economy has been looking shakier. Would our writer start investing…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Up 22% in a month! This FTSE 100 takeover target could rise further

A takeover bid for an FTSE 100 firm is big news. Here's what I'm doing about RS Group shares after…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Income shares could help me turn £300 into £500. Here’s how

Our writer believes investing in the right income shares over the long term could be lucrative. Here is his approach.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

I bought these FTSE 250 shares for fat dividends!

These two FTSE 250 shares have gained in value since I bought them recently. But I still see these stocks…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

Should I buy this REIT to add to the others that pay me juicy dividends?

Jabran Khan looks closer at this real estate investment trust (REIT) and decides if he would add the shares to…

Read more »