At the moment, I’m mostly looking to buy UK, rather than US equities. And I think that some of the stocks included in the FTSE 100 are really attractive investment opportunities for me right now.
One reason for this is that I think the FTSE 100 contains some great businesses. A second is that I think that UK stocks are trading at more attractive prices than their US counterparts.
Both of these reasons have been true for some time, though. The reason I’m looking closer to home for investment opportunities right now is due to the falling value of the pound.
UK stocks
In my view, there are some terrific companies listed on the FTSE 100. These include BAE Systems, InterContinental Hotels Group, and Rio Tinto.
Furthermore, UK stocks often trade at a discount to their US counterparts. The FTSE 100 currently has a price-to-earnings (P/E) ratio of 10.4, compared to a 19.8 P/E ratio for the S&P 500.
Since the beginning of January, the value of the pound against the dollar has fallen by almost 18%. Today, £1 is worth $1.11, compared to $1.35 at the start of the year.
This is significant for buying US equities as a UK investor (like me). Specifically, it means that buying US stocks is more expensive than it might seem.
US stocks
Shares in Apple, for example, have fallen by just over 23% since the beginning of the year. But as a UK investor, the amount that I’d pay today is only around 6% lower than the amount I’d have paid at the start of January.
In January, the Apple share price was $182. With £1 equivalent to $1.35, this means that I could have bought a share for £134.
Today, the company’s stock costs $126. But with the value of £1 having fallen to $1.11, a share in Apple now costs £126.
In other words, the declining value of the pound means that US stocks aren’t as cheap as they look for a UK investor. Despite an 18% decline in the share price, Apple shares are only around 6% cheaper.
With UK stocks, there is no exchange rate to worry about. This gives me an additional incentive to look at the FTSE 100 for investment opportunities right now.
FTSE 100
The weakness in the pound has been helpful for me as someone who already owns a number of US stocks. Specifically, it means that I stand to receive more in dividends than I would have.
In May, Apple distributed dividends to its shareholders. The falling pound means that the same dividend today would be worth almost 10% more to me than it would have five months ago.
As a UK investor, owning US stocks at a time when the pound is falling is great, but buying them is more expensive. That’s why I’m looking at the FTSE 100 for investment ideas at the moment.
The falling pound is making UK stocks cheap compared to US equities. As a result, I’m looking at the FTSE 100 for investment opportunities right now.
