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2 FTSE 100 UK shares I’d buy for 2021

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I believe the FTSE 100 is full of UK shares worth buying right now. In particular, two companies stand out to me as being attractive acquisitions. These are the banking giant NatWest (LSE: NWG) and the financial services group Legal & General (LSE: LGEN)

These businesses might not be suitable for everyone. Financial companies can be difficult to analyse, and it’s challenging to determine which assets sit on their balance sheets. Unfortunately, as many investors found out during the financial crisis, this can become a significant problem if many of the assets owned by these businesses turn out to be worth nothing. 

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However, I’m comfortable with the level of risk here. I also believe that the management of both of these UK shares has done everything possible to reduce risk, although that does not guarantee that they have eliminated this risk. 

FTSE 100 income champion

Legal & General is one of the largest financial companies in the UK in terms of total assets. The group manages over £1.1trn of assets for clients. I think this gives it a strong competitive advantage. The high level of assets means it can achieve economies of scale. Meanwhile, the firm’s size can attract customers who may not be comfortable investing their money with a smaller business. 

I think these are all highly desirable qualities. They also support the company’s dividend. At the time of writing, shares in the firm support a dividend yield of 7%. While this distribution is by no means guaranteed, it’s significantly above the FTSE 100 average, which stands at around 3.5%.

Legal’s size and diversification do not make it immune to challenges. Rising costs due to increased regulation or headwinds such as Brexit could hit the firm’s bottom line. That might have an impact on the dividend. As a pension manager, the group’s balance sheet is also highly susceptible to changes in interest rates. A significant change in interest rates could have an enormous negative impact on the balance sheet and cause instability across the business.

So, that’s something I will be keeping an eye on going forward. However, I based on the company’s current qualities and income potential I would buy the stock as part of a diversified basket of UK shares for 2021. 

Recovery play

NatWest could face similar challenges to Legal. The bank’s primary business is lending money to customers. That means profits rise when interest rates increase. Unfortunately, it also means profits fall when interest rates decline. The lender may face challenges if the Bank of England decides to introduce negative interest rates. 

Still, it looks as if negative rates are off the table for the time being. That seems like good news to me. The UK vaccination programme also suggests there’s light at the end of the pandemic tunnel, which implies the UK economy may begin to recover in the second half of 2021. That would be positive for the FTSE 100 bank’s outlook, although a resurgence of the virus would be bad news and could delay a recovery. 

Nevertheless, I’m comfortable with the risks the business faces, and as a result, would buy the stock for my portfolio in 2021. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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