Back in February, the UK’s FTSE 100 index rose above the 8,000 mark. However, since then, it has fallen back below the 7,400 level.
While this pullback is frustrating, I remain optimistic that the Footsie can get back to 8,000. I think there’s a chance we could even see this happen before the end of the year. Here’s why.
Old economy stocks
The FTSE 100 has a lot of exposure to ‘old economy’ stocks. I’m talking about companies such as oil producers, miners, industrial firms, banks, and insurers.
Now, for the majority of 2023, such stocks haven’t been in favour. This is due to the fact that technology stocks have been flying.
With tech stocks such as Apple, Amazon, and Nvidia (which are all listed in the US) producing huge returns, investors have ignored the kind of old-school companies that are in the Footsie.
A shift in the market?
Over the last month or so, however, we’ve seen a little bit of a shift in the stock market, with investors banking profits from tech and deploying their capital into areas of the market that have lagged this year.
We can see this in the performance of Apple versus BP. While the former has fallen over the last month, the latter has produced solid gains.
If this trend was to continue in the second half of 2023 (there’s no guarantee it will, of course), we could potentially see the FTSE 100 index hit 8,000 again.
It’s worth pointing out that for the index to return to the 8k level, it would only need to rise about 9% from here. And that kind of gain can be achieved quickly.
Late last year and early this year, for example, the Footsie generated roughly that type of gain in just two months or so.
Backing the FTSE 100
As for how investors could capitalise on a potential return to 8,000, there are a few ways.
One strategy is to buy a FTSE 100 tracker fund. These funds aim to replicate the performance of the index. So, for example, if the Footsie was to rise 9%, a tracker fund should generate the same return (excluding fees).
Another is to invest in a UK equity fund. If the Footsie rises from here, most UK funds are likely to do well.
A third approach is to invest in individual FTSE 100 companies. This is a higher-risk strategy as every company has its own unique risks. However, the rewards associated with this type of approach are potentially greater.
Just look at the performance of industrial company Ashtead. Over the last five years, it’s up about 140%, meaning it has outperformed the wider FTSE 100 by a mile.
It’s these kinds of market-beating gains that make stock picking an appealing strategy. If one can nail a few long-term winners, it’s possible to beat the index by a wide margin.
