2024’s been a terrific year for the FTSE 100. Normally, as a long-term investor, 11 months doesn’t mean much in the stock market. However, with economic conditions improving across the UK, businesses have started marching back in the right direction. And this recovery tailwind has led to some explosive returns.
So how much could have been made when investing in the UK’s flagship index this year?
FTSE 100’s 2024 overall performance
Let’s start with the index as a whole. Since January, the FTSE 100’s climbed a solid 7.2%. That’s already ahead of its 10-year average of 6%. However, when including the additional gains from dividends, this return climbs even higher to 11.1%.
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In other words, if I’d invested £5,000 at the start of the year, I’d have around £5,555 right now. That’s certainly not bad. But it pales by comparison to the performance stock-pickers might have earned.
Standout sectors
As of November, there are currently five banks in the FTSE 100. And all have delivered some significant market-beating returns year-to-date, with NatWest Group (LSE:NWG) leading the pack.
| Bank | Market-Cap | Year-To-Date Return |
| HSBC Holdings | £132.5bn | +16.5% |
| Barclays | £38.1bn | +69.5% |
| Lloyds Banking Group | £33.2bn | +11.9% |
| NatWest Group | £31.7bn | +77.3% |
| Standard Chartered | £23.6bn | +45.8% |
An equal-weighted portfolio covering these five banking giants would have generated a staggering year-to-date return of 44.2%. In terms of money, a £5,000 investment would now be worth a whopping £7,210. So what’s been driving these gains?
The most significant catalyst is likely falling interest rates. Normally, higher rates are a boon as they allow banks to bolster their net interest margin. However, banks also have investing divisions which have benefited from the rising financial markets throughout 2024.
What’s allowed NatWest to stay ahead of its rivals is maintaining its net interest margins, despite rates falling. It seems management was prudent in its hedging activity, protecting against falling interest rates. In other words, the bank’s benefiting from the best of both worlds.
Pairing this with higher deposits increases the capacity for new loans, and NatWest seems to be firing on all cylinders. At least, that’s what the recent upgrade to its full-year outlook would suggest.
Regulatory risks
The Financial Conduct Authority has launched a regulatory probe into motor finance providers investigating claims of undisclosed commissions. This came after 17,000 complaints were filed with the Financial Ombudsman Service. And while the investigation’s still ongoing, any negative outcome could spell trouble for Britain’s banks.
Lloyds appears to be the most exposed since it owns one of the UK’s largest motor finance providers, Black Horse. However, regulatory penalties, if any, will likely be handed out across the entire financial sector involved with motor finance.
That potentially includes current star performer NatWest. While the bank stopped its motor financing activities in 2019, it may still find itself landed with a fine for any undisclosed commissions prior to this date.
The bottom line
Personally, I think there are far more lucrative fintech opportunities to capitalise on right now. However, should the banking sector take a tumble once the investigation results are out, there could be some tasty discounts to snap up. That’s why I’m keeping a close eye on this sector.
