Over the long term, the US S&P 500 index has performed very well. It is up 89% over the past five years, compared to 51% for the UK’s FTSE 100 index.
But so far in 2025, the British index has beaten its US peer, growing 11% versus 8%. That is a modest achievement – but it is an outperformance all the same.
On top of that, the S&P 500’s dividend yield of 1.2% pales in comparison to the 3.3% currently offered by the Footsie.
So, can the FTSE 100 keep on doing better than its US counterpart?
I’m still bullish on the FTSE 100
The FTSE 100 has been doing well – indeed, this year has seen it hit multiple new all-time highs.
But it continues to look cheaper than the S&P 500, trading on a lower price-to-earnings ratio.
Then again, in some ways the long-term growth prospects look less exciting, potentially justifying that higher valuation for the S&P 500. While all of the US index’s five biggest companies by market capitalisation are tech giants, not one of the FTSE 100’s five are.
That helps explain the stronger performance of the British index so far this year, as some tech stocks Stateside have suffered from an uncertain business environment in the context of AI, combined with already high valuations. But it also raises a question of where a long-term growth-focused investor might want to look.
Still, I continue to see the FTSE 100 as offering potentially good value. It could keep performing strongly even on a relative basis, depending on what tech sector results and investor confidence mean for the S&P 500 in coming months.
I’m buying individual shares
But that does not mean I am ploughing spare cash into a FTSE 100 tracker fund.
While I think the index could potentially move further upwards, I am choosing to invest in individual shares rather than buying the index.
That is because I think there are some potential bargains but also seemingly overpriced shares in the FTSE 100. So, I prefer to focus on individual shares I see as potential bargains.
Did I make a mistake?
So far this year that approach has been delivering mixed results.
For example, I bought into ad giant WPP (LSE: WPP) after nervousness about its business performance led its share price to fall. A key risk is that AI will replace large parts of what the advertising industry does, hurting revenues and profits.
WPP’s interim results today (7 August) provided very little comfort. The interim dividend was halved and the share price fell to a 16-year low.
So, is this FTSE 100 a value trap even now?
It could be, if AI really does decimate its business. But I have doubts on that score – I think the company’s client relationships, massive creative workforce and long experience in advertising are all competitive advantages that may help protect a lot of what it does from AI.
On that basis, I think that the share continues to look potentially cheap from a long-term perspective despite the risks and have no plans to sell.
