Over the past year, there has been a marked difference in the performance of the FTSE 100 versus the S&P 500. The former is up by 9.5% over this period, with the latter up 19%. With UK investors like myself having the ability to easily buy US shares from across the pond, should I allocate more money to that area going forward?
The case for doing so
One of the sectors that has led growth over the past few years is technology. Looking forward, artificial intelligence (AI) is an offshoot of this area that is likely to carry the baton of being the hottest theme for the coming years.
When I look at companies that are at the forefront of this space, they are part of the S&P 500.
I own shares in Apple (NASDAQ:AAPL), so agree that if I want to get proper exposure to tech, it makes sense for me to buy those firms, listed on the S&P 500.
Apple shares are up 22% over the past year, as the company continues to push forward. At the worldwide developers conference it recently announced a new wave of AI tools that will be coming to the new iPhone and related products shortly. This shows how it’s able to monetise AI and harness it in a practical way.
The business is also appealing due to the stable cash flow and continued revenue growth. The latest results out from August showed Q2 revenue up 5% versus last year. It’s also translating down to the bottom line, with earnings per share of $1.40, up 11% from Q2 2023.
As a risk, the recent ruling against Alphabet on paying for search engine preferences isn’t a good look for Apple. As more information comes out, it could have reputational damage for both sides.
In comparison, the FTSE 100 isn’t known for tech firms, and doesn’t have many stocks that fit the bill at all.
The other side of the coin
The big argument for the FTSE 100 is that it offers me much better value than the US market. For example, the price-to-earnings ratio of the entire index is 14.7. This compares to 27.92 for the S&P 500. The lower the figure, the better value I’m getting as an investor.
Part of this is due to the fact that although there are some great individual companies listed in the UK, sentiment around the UK in general has negatively impacted investment. Factors including political uncertainty, Brexit, and a poor economic outlook have all had an impact. Yet this is unlikely to last forever, so I expect UK stocks to have a period in the limelight.
Another concern is that of a US recession this year. After a disappointing payrolls report earlier in August, the unemployment rate has risen to 4.3%. Some investors are now expecting the country to enter a recession before the end of 2024. If realised, this could cause the US markets to slide lower.
The best of both worlds
I own both US and UK stocks. Looking forward, I do think I’ll invest more in S&P 500 stocks, with a focus on tech. However, there are still plenty of undervalued ideas from the FTSE 100 that I’ll aim to purchase for the long term.
