Investing in well-chosen individual stocks can allow investors potentially to beat the market. However, they might also consider allocating a portion of their portfolios to a FTSE 100 tracker fund.
Via exposure to the Footsie as a whole, we can benefit from diversification across some of the UK’s largest companies. These include the likes of AstraZeneca, Shell, and HSBC, among others. Moreover, many brokers offer very competitive fees for investing in index funds.
But, how did the FTSE 100 index perform last year? Did other major stock market indexes deliver better returns? And what could 2024 have in store?
Let’s take a closer look.
2023 return
There are several FTSE 100 tracker funds available to UK investors. A good example is Vanguard’s FTSE 100 UCITS ETF (VUKE).
At the beginning of 2023, I could have purchased 30 units of this exchange-traded fund (ETF) for £33 each. My total cost would have amounted to a little under four-figures — £990 to be exact.
Today, the price of a single unit is £33.60. Accordingly, my initial investment would be valued at £1,008 today.
However, a significant bulk of the FTSE 100’s historic returns have come from shareholder distributions. Adding dividends to the equation brings my total return to £1,046.51.
Lagging overseas stocks
It’s fair to say 2023 wasn’t a spectacular year for the FTSE 100. Granted, investors would have made a positive return. Yet, at under 6%, it barely eclipses what a cash savings account might have offered.
The contrast between Britain’s blue-chip index and leading US benchmarks is stark. Both the S&P 500 and Nasdaq Composite made strong advances last year, rising by about 25% and 45%, respectively.
Big tech was the engine driving these returns. Stocks like Nvidia, Microsoft and Amazon all surged in 2023. This serves as a reminder that although the FTSE 100 offers some diversification, it lacks exposure to the tech sector, which has proved particularly lucrative in recent years.
Poised for growth in 2024?
Nonetheless, looking further back, while the FTSE 100 delivered a modest gain in 2022, many major stock market indexes finished deep in the red, rocked by global turmoil.
What’s more, at present, the UK index looks relatively cheap. The FTSE 100’s price-to-earnings (P/E) ratio of just 9.5 compares favourably to the S&P 500’s multiple of 23.
These low valuations add weight to the investment case for a FTSE 100 tracker fund, in addition to robust dividends for passive income seekers and upside potential from earnings.
Beyond the FTSE 100
That said, I’m conscious of the index’s lacklustre performance since the 2008 financial crisis. While I see value in tracker funds, investors may wish to consider doing so only as part of a broader strategy.
Buying individual stocks potentially allows us to benefit from huge gains that the index as a whole just can’t match. For instance, the Footsie’s star performer last year, Rolls-Royce, saw its share price rise by over 200%.
Although there are no guarantees with stock market investing, I’ll continue to build my diversified portfolio in 2024. With a combination of tracker funds and individual shares, this could be a great year for me to pursue my aim of generating long-term wealth for the future. That’s the Foolish way!
