Despite all the volatility and chaos created by Covid-19, inflation, interest rates and geopolitics, the S&P 500‘s delivered some pretty robust returns for long-term investors. And yet, despite UK shares having a reputation for underperforming US stocks, one company in particular is massively ahead.
The US flagship index has delivered a total gain of 117% since May 2020. On an annualised basis, that’s the equivalent of 16.8%, which is already pretty impressive considering the historical long-term average is around 10%. Now let’s compare that performance against NatWest Group (LSE:NWG). After factoring in dividends, NatWest shareholders have reaped a jaw-dropping 350% total gain – three times more than the S&P 500, translating into a 35% annual return.
That sort of growth’s pretty hard to come by. So what’s responsible for this explosive success? And should investors be looking at NatWest as a potential buy today?
Investigating performance
With interest rates rising to combat inflation, NatWest’s net interest margin has enjoyed a welcome boost over the last five years. And thanks to management implementing some clever structural hedges, lending margins have continued to climb despite the Bank of England starting to cut rates in 2024.
As per its first-quarter results for 2025, the bank’s net interest margin stands at 2.28% versus 1.89% five years prior. This may not seem like a significant difference but when scaled up by a loan book of £371.9bn, a 39 basis point increase translates into a significant profit boost.
Even when ignoring the low profit point caused by the 2020 pandemic, pre-tax net income since 2021 has increased by 54% to £6.2bn. Subsequently, management has adjusted its dividend policy to increase the payout ratio to 50% from around 40%, in line with its peers. And with early profits in 2025 exceeding analyst expectations, NatWest looks primed to continue firing on all cylinders.
Time to consider buying?
Despite more than tripling its market-cap in the last five years, NatWest shares continue to trade at a pretty cheap-looking valuation. In fact, the stock only sits at around 8.2 times forward earnings. That’s in stark contrast to many high-flying S&P 500 growth stocks. And that would certainly help explain why 14 of the 19 institutional analysts following the business currently have a Buy or Outperform rating.
However, as impressive as NatWest appears, there are some crucial risks and caveats to consider. A large chunk of its loan book consists of residential mortgages, which could prove problematic if economic conditions worsen and default rates start to climb.
At the same time, while structural hedges have helped boost net interest rate margins higher, continued downward pressure on lending rates from the Bank of England will eventually hit NatWest’s profitability. The bank may be able to offset this impact with higher lending volumes. but with ample competition from other banks, paired with historically slow UK GDP, growth may make this challenging.
All things considered, I’m cautiously optimistic about the future of NatWest shares. While I’m not looking to add further exposure to the banking sector in my own portfolio, other investors may want to consider investigating further the potential risks and rewards.
