Last year I decided this was the best stock to buy on the entire FTSE. Here’s what happened

Last year I bought what I decided was the very best stock to buy on the FTSE 100, and there’s a chance I found it. But would I buy it again today?

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Claiming a company is the best stock to buy out of all FTSE shares is a daft thing to do. I’ll admit it, I haven’t researched every single UK stock out there.

Plus there’s probably no such thing as a ‘best’ stock on any market, because different companies offer different investors different things at different times. Nonetheless, last year, after converting three legacy company plans into a self-invested personal pension (SIPP), I decided to start my new portfolio by investing in what I decided was a real cracker.

The company I chose? FTSE 100 listed private equity and infrastructure specialist 3i Group (LSE: III). I’ve seen the name often enough, usually flying high in the performance tables, but didn’t really know what it was about.

Investing is a personal thing

On 3 August, I invested £2,000 at £18.88 per share, which gave me 105 shares. They set off at a decent clip, so on 4 September I invested another £2k and picked up 98 shares at the higher price of £20.06.

Those did well, too, so I invested another £2k on 29 November, and picked up 89 shares for £22.16 each. I reinvested my first dividend on 16 January, which bought me three shares for £23.28 each.

Naturally, I wished I’d thrown caution to the wind and invested the full £6k at once (and a lot more besides) because my original purchase is up 48.8% at today’s 3i Group share price of £28.10. I’m not complaining, though. I’m up 37.42% overall, plus the dividend, making this the best performer in my new SIPP.

Over five years, 3i Group is the third-best performer on the FTSE 100, rising almost 175%. Only Ashtead Group and Frasers Group beat it.

It’s also third-best over 12 months, up 68.86%. In this case, it was beaten by Rolls-Royce Holdings and Intermediate Capital Group. Ashtead and Frasers couldn’t last the pace, 3i could.

3i is an investment trust with a strong pedigree. It’s been building up businesses and selling at a profit since 1945. Rising inflation, high interest rates and economic uncertainty can be bad news for private equity, but they haven’t troubled 3i unduly.

Highly concentrated portfolio

However, recent stellar performance has been almost wholly driven by its biggest holding, Action. The Dutch non-food discounter has 2,300 stores across 11 countries in Europe, and delivered another 34% increase in operating EBITDA earnings in the first nine months of this financial year. It paid 3i Group a dividend of £189m in December.

Action now makes up 65% of the total 3i portfolio, so the trust is hugely imbalanced towards just one stock. Performance elsewhere was patchy. While some holdings made substantial profits, others shrank. CEO Simon Borrows reckons the group’s “unrelenting focus on good capital allocation” has set it up for another strong year, though.

My other concern is that 3i trades at a whopping 38.99% premium to underlying net asset value. It’s bloomin’ pricey, in other words, making it vulnerable to the slightest bad news.

Despite 3i Group’s smooth upward share price curve, I’m bracing myself for future bumpiness. Especially if management struggles to find another company to match the success of Action. I’ll hold and hope, but I no longer think it’s the very best stock for me to buy today.

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 assessed. Consider taking independent financial advice.

Harvey Jones has positions in 3i Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.

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