The FTSE 100 has surged recently. Earlier this year, it hit 10,000 for the first time ever.
Could the large-cap index go on to hit 11,000 this year? I think it’s possible – here’s why.
The investment environment is changing
For much of the last decade, the FTSE 100 has struggled. Because investors have been mainly focused on technology and growth stocks (particularly in the US).
The Footsie mainly consists of ‘old economy’ companies like banks, insurers, oil companies, miners, and consumer goods businesses. So it has been ignored by a lot of investors.
However recently, things have started to change. Last year, for example, we saw investors start to move away from the US market and allocate capital to value stocks across Europe – this gave the Footsie a major shot in the arm.
Now investors are starting to focus more on companies that look relatively immune to AI disruption such as Unilever, National Grid, and Rio Tinto. From an investment perspective, these types of businesses offer more certainty than others.
The path to 11,000
Could this latter trend send the index to 11,000 this year? Possibly.
There are a lot of these types of companies in the index. Some others worth highlighting include Shell, BAE Systems, and Tesco.
Note that right now, the index sits near 10,470. So to get to 11,000 it would only need to rise about 5% from here.
That’s not a huge ask. If companies at the top of the index (with the largest weightings) continue to move higher, it could be an achievable target.
Investing in the FTSE 100
Now, if an investor is bullish on the FTSE 100, they have several options. One option is to invest in a FTSE 100 tracker fund.
An example of such a fund that could be worth considering is the iShares Core FTSE 100 UCITS ETF (LSE: ISF). This is a simple index fund that aims to track the FTSE 100.
With this exchange-traded fund, an investor can get exposure to the index at a very low cost. Ongoing fees are only 0.07% (investors may also need to pay trading commissions and platform charges depending on their broker).
It’s worth noting that this particular tracker fund pays out dividends received from the underlying FTSE 100 constituents to investors. At present, the dividend yield is a little under 3%.
Some other tracker funds reinvest dividends. This makes it easier for an investor to compound their profits.
Of course, the downside to this product is that an investor is never going to beat the index. Meanwhile, if the Footsie delivers disappointing returns (which it could), this product will too.
That brings me to the next option that investors have. And that’s buying a number of high-quality FTSE 100 shares.
This approach requires more time and effort than just buying a tracker fund. And it’s also riskier as each stock is going to have its own issues.
However, there’s potential for larger gains with this approach. Pick the right stocks, and the rewards can be fantastic.
Just ask anyone who invested in Rolls-Royce three years ago. Over that timeframe, it has returned more than 1,000%!
