The performance of both the FTSE 100 and FTSE 250 has been hugely disappointing since 2015. And the outlook for the next decade remains highly uncertain, meaning investors may want to consider individual shares to generate a healthy return.
In the shade
Someone who bought a Footsie-tracking exchange-traded fund (ETF) in 2015 would have recorded an average annual return of just 6.2%. A FTSE 250-tracking fund, meanwhile, would have delivered an even worse 5.3%.
By comparison, an S&P 500-tracking ETF offered an average annual return of around 12.5%. Even a fund that tracks Germany’s DAX index would have supplied a better return over that timeframe (6.8%).
The dominance of high-performing tech stocks within the S&P 500’s one reason for this outperformance. However, the FTSE 100’s and FTSE 200’s poorer returns on a global basis also reflect recent weak economic growth and volatile political landscape over the past decade.
Talking growth stocks
Falling interest rates could support a recovery over the next 10 years. However, tough economic conditions mean that any upturn is far from certain.
In this landscape, investors may want to consider searching for individual large- and mid-cap UK shares to buy instead of holding an index fund. Bear in mind of course, that the best investment for each investor will vary based on their personal goals and financial circumstances.
Purchasing specific shares isn’t always a successful strategy. This carries much more risk than buying an ETF that contains a diversified basket of companies.
However, this tactic can also deliver thumping gains, as the following selection of FTSE 100 and FTSE 250 growth stocks shows. Their average annual return since early 2015 can be seen on the right.
| Company | Return |
|---|---|
| FTSE 100 | |
| Games Workshop | 15.6% |
| JD Sports Fashion | 15.5% |
| Ashtead (LSE:AHT) | 17.7% |
| 3i | 23.7% |
| London Stock Exchange | 17.5% |
| FTSE 250 | |
| Plus500 | 15.9% |
| Greggs | 10.2% |
| Volution | 13.9% |
| Kainos Group | 15.2% |
| Allianz Technology Trust | 23.9% |
When also factoring in dividends during the period, the returns are even more impressive.
A top FTSE 100 share
Ashtead’s one of several of these top growth shares I hold in my own portfolio. Earnings have boomed since 2015 as it’s rapidly expanded organically and through acquisitions.
Over the past decade, the rental equipment supplier has almost doubled its market share in the US to around 12%. With a strong balance sheet and the market remaining highly fragmented, the firm has a chance for further substantial profits-boosting acquisitions.
Looking ahead, Ashtead also has significant structural opportunities as infrastructure spending ramps up in the States. Though be aware that revenues could come under pressure if the US experiences a fresh downturn (around 86% of revenues came from across the Atlantic last year).
If the company keeps delivering those knockout returns of the past decade, a 40-year-old investing £200 each month would have made a stunning £1.08m after 25 years, excluding broker fees. Their returns could be even higher, depending on future dividends too.
To put this in context, a 6.2%-yielding FTSE 100 index tracker would generate just £142,943 over the same period.
Past performance isn’t always an accurate guide to future returns. But here you can see what an investor can achieve by buying specific growth stocks as part of a diversified portfolio.
