Over the long term, the FTSE 100 has typically generated an annual total return of around 8%. But in 2025, the UK’s flagship index has been firing on all cylinders and smashed past this threshold.
With UK shares being so cheap by international standards, and foreign investors looking to diversify away from US stock market uncertainty, the FTSE 100 has climbed by just over 15.4% since the start of the year. But when dividends are also thrown into the mix, the total return lands at a jaw-dropping 19.3%!
Not only is this more than double its historical average, but it’s also notably ahead of the 15.6% achieved by the S&P 500. And anyone who put £20,000 to work in an ISA at the start of the year now has £23,860 to smile about. But the results have been even more explosive for stock pickers.
Turning £20k into £76k
While not every stock in the FTSE 100 has had a great year, Fresnillo (LSE:FRES) stands out as a leader.
The Mexican precious metals miner has been navigating a shifting and uncertain regulatory landscape. Yet production volumes have nonetheless continued to climb. And with investors rushing to buy gold and silver to counteract inflation, Fresnillo’s profits have skyrocketed.
Fun fact: across the first six months of the year, earnings surged by 297.3%, from $117.7m to $467.6m.
This perfectly demonstrates how fixed operating costs can deliver enormous profit margin expansion when metal prices are on the rise. And with that in mind, it’s not surprising to see the Fresnillo share price leap by over 281% since January – enough to transform £20,000 into £76,200.
Yet rather than returning all these gains back to shareholders, management’s begun executing a $560m acquisition for Probe Gold.
Probe is a late-exploration-stage gold mining enterprise based in Canada, sitting on a literal mountain of gold. Its flagship Novador project is estimated to contain 10 million ounces of gold with the capacity to produce up to 200,000 ounces a year once full-scale commercial production begins.
Not too late to buy?
At today’s gold prices, Novador has the potential to generate an extra $828.8m of revenue for Fresnillo yearly. But more crucially, it diversifies the group’s income stream outside of Mexico, which, as previously mentioned, is becoming politically less friendly to the mining sector.
As experienced investors know, diversification is a powerful risk-management tool. However, that doesn’t mean Fresnillo is a risk-free investment opportunity.
The Gold Probe acquisition could take several years before it starts to generate value for shareholders.
With feasibility studies still underway, commercial production at Novador isn’t likely to start until the late 2020s to early 2030s. In the meantime, the impact on the group’s balance sheet will be immediate. And it could generate substantial financial pressure in the short-term, especially if gold prices suddenly slump.
Nevertheless, given management’s impressive track record at capital allocation and mining investments, it could prove lucrative to give it the benefit of the doubt. With that in mind, I think Fresnillo shares are worth a much closer look.
Of course, it’s not the only FTSE 100 stock with ample long-term growth potential that outperformed this year. And there are plenty more exciting opportunities I’ve got my eye on.
