At the start of the year, I listed a number of predictions for the FTSE 100 index in 2020. I didn’t list any specific price level forecasts for the index, as realistically no one knows what level stock market indexes will rise or fall to in the short term. What I did do, however, is make some predictions as to how the FTSE 100 could behave in 2020.
Now that we are halfway through the year, let’s look at how those predictions have fared.
A decent pullback
My first prediction was that we would see at least one decent pullback in 2020. I said at the time: “I don’t think it will take much to see another stock market dip in the near future.”
It’s fair to say this prediction was on the money. In February, the FTSE 100 began to fall sharply due to Covid-19 uncertainty, and by mid-March, the index was down about 35% for the year. So, it didn’t take too long for this prediction to eventuate.
One out of one so far, then.
My next prediction was that the FTSE 100 would continue to pay out big dividends to investors. I said the index was likely to throw off a “huge amount of cash” in the form of dividends.
This prediction has not been as accurate as I would have liked it to be. That’s because a large number of companies in the FTSE 100 have either suspended or cancelled their dividends due to Covid-19 uncertainty.
Plenty of FTSE 100 companies have paid big dividends to investors, though. For example, in the last month, I’ve personally received dividend payments from the likes of Legal & General, Unilever and Sage.
However, due to Covid-19, it’s not going to be a vintage year for UK dividend investors. We’re not going to see £90bn+ paid out to investors like AJ Bell predicted at the start of the year.
Overall, I’m going to give myself a half-mark here.
Weighed down by underperformers
Finally, I predicted that the FTSE 100 index would be “weighed down by underperformers.” I said that the index’s heavy exposure to industries such as oil & gas, banking, and tobacco, as well as its exposure to debt-laden companies, could act as a drag on the index.
This prediction has been accurate. So far this year, the FTSE 100 has been weighed down by a number of big players within the index. Royal Dutch Shell, for example, is down over 40% year to date. HSBC is down roughly 35%. BT Group is down 41%. As a result, the FTSE 100 has underperformed other major stock market indexes such as the S&P 500, by a wide margin.
Another full mark here, taking my total score to two-and-a-half out of three. Not a bad effort.
My FTSE 100 predictions: key takeaways
If there’s one takeaway from the performance of the FTSE 100 this year, it’s that picking stocks, instead of investing in the whole index through a tracker fund, can pay off.
While the FTSE 100 index, as a whole, is down nearly 20% for the year, some companies, including the likes of Unilever (up 2%) and Reckitt Benckiser (up 19%), have held up quite well.
Similarly, while over 40 FTSE 100 companies have suspended or cancelled their dividends, others such as Sage and Diageo have continued paying them.
Ultimately, owning the right FTSE 100 stocks can make a big difference to your investment returns.
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Edward Sheldon owns shares in Unilever, Diageo, Reckitt Benckiser, Sage, Legal & General Group, and Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo, HSBC Holdings, and Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.