The FTSE 100 index is enjoying a hot streak at present. This year, the large-cap index has gained approximately 21% (not including dividends).
While this is obviously great news for those in FTSE 100 tracker funds, it’s worth pointing out that this return is well above the average return from the Footsie over the last 20 calendar years. So, what does that mean for returns from here?
Average FTSE 100 returns
Historical FTSE 100 data isn’t that easy to find. However, I keep a spreadsheet with the total returns (gains plus dividends) for every year over the last few decades and I monitor it regularly to see how the index is performing over the long run.
According to my calculations, over the last 20 calendar years (2005 to 2024) the FTSE 100 delivered a total return of about 243%. That translates to an annualised return of approximately 6.4%.
So right now, the Footsie is on course to smash its long-term average.
Let’s say that the index finished this year at current levels and that dividends took the total return for 2025 to 24%. In this scenario, we’d be looking at almost four times the average annual return over the last 20 calendar years.
Now, just because a stock market index has a strong single year doesn’t mean that it can’t have a good year the next. Sometimes, indexes put together back-to-back strong years.
But after a 20%+ gain this year and a near-10% gain last year, I wouldn’t be surprised if we were to see muted returns from the Footsie in 2026. In my view, a period of ‘mean reversion’ – where returns fall back towards the average – is a real possibility.
A stock picker’s market now?
So, what’s the best approach now? Well, I think that it could be worth focusing less on FTSE 100 tracker funds and more on individual Footsie stocks from here (in the medium term).
Ultimately, I reckon there will be plenty of individual stocks that outperform the large-cap index by a wide margin next year. To my mind, it’s now a stock picker’s market.
A Footsie stock to look at today
One stock in the Footsie that I like the look of right now (and believe is worth considering for a portfolio) is London Stock Exchange Group (LSE: LSEG). It’s one of the world’s leading providers of financial data today (serving banks and investment managers).
This stock hasn’t participated in the rally this year. Year to date, it’s down about 20%.
After this fall, it looks cheap (for a data/software company). Currently, the forward-looking price-to-earnings (P/E) ratio is 20.
Given that the company is now rolling out AI-powered solutions for its customers, I reckon it’s only a matter of time until it sees a valuation re-rating. To my mind, this stock could command a P/E ratio of 25+.
There are no guarantees that it will outperform the FTSE 100 next year, of course. If the company doesn’t show solid growth when it reports its earnings, its share price could remain under pressure.
I’m optimistic that the stock will provide market-beating returns, however. It’s worth noting that the average analyst share price target is £125 – about 35% above the current share price.
