The FTSE 100’s recent market crash may have caused paper losses for many investors, but it could provide a rare chance to buy the best UK shares while they trade at low prices.
Historically, purchasing undervalued businesses likely to survive short-term difficulties has been a sound means to generate market-beating returns. As such, with many sectors currently out of favour among investors, now could be the right time to build a portfolio of UK shares that produces high returns over the long run.
Buying undervalued FTSE 100 shares
The FTSE 100’s performance since its inception in 1984 suggests it offers strong long-term growth potential. For example, it’s produced an annualised total return of 8% over its 36-year lifetime. And that’s likely to be ahead of the returns of other mainstream assets over the same time period.
However, investors who’ve purchased UK shares following a market crash may have fared much better than the returns of the wider index. In other words, they’ve been able to buy shares when they offer wider margins of safety due to their low prices.
Over time, such companies are likely to have produced higher returns than the 8% annualised returns of the index. That’s because the FTSE 100 has a strong track record of recovery following all of its previous downturns.
Therefore, buying stocks following a market crash, such as that experienced in 2020, could prove to be a very profitable strategy. It may allow you to capitalise on the cyclicality of the index.
A rare opportunity
Of course, the FTSE 100 has experienced many downturns during its history. However, it’s only experienced a handful of bear markets. This suggests that now could be a rare opportunity to buy undervalued shares.
Certainly, the index has rebounded from its 2020 lows. However, many of its members continue to trade significantly below their prices from the start of the year. Many others have valuations that are substantially lower than their long-term averages. This suggests they offer wider margins of safety than have been the case for a number of years.
As such, there appear to be a wide range of buying opportunities available to long-term investors that may produce high capital returns as the index recovers in the coming years.
Buying the best UK shares
Identifying the most attractive FTSE 100 shares can be a tough task following a market crash. Risks, such as a continued rise in coronavirus cases, could cause the operating conditions for many businesses to remain weak.
However, buying companies with solid balance sheets, sound strategies, and resilient track records of growth while they trade at low prices, could lead to high returns in the long run. With many UK shares appearing to offer such characteristics, now could be the right time to purchase them.
