Last year, the FTSE 100 produced one of its best performances since the financial crisis. However, despite this performance, economic developments over the past few months suggest index could surge to new highs in 2020.
As such, now could be the time for savvy investors to jump into the market and make the most of what could be a record-breaking year for the UK’s leading blue-chip index.
Global growth
2019 was a mixed year for the worldwide economy. For much of it, the headlines were dominated by the trade war between the United States and China.
In addition to these concerns, traders also had to deal with the prospect of a messy Brexit. A no-deal scenario seemed like a very real prospect until the end of the year. Threats from both sides caused companies and consumers across Europe to put investment and spending plans on ice.
These Brexit-related issues haven’t entirely disappeared just yet but, for the first time in three years, companies have some certainty. Indeed, there has been a notable uptick in business activity across the UK since the general election results became public.
At the same time, the US and China have reached a tentative phase-one trade deal. This hasn’t settled the two economic superpowers’ row overnight, but it has brought some much-needed stability to the global economy.
Both of the above developments suggest the global economic outlook is now brighter that has been for several years. This is great news for the FTSE 100. As more than 70% of the index’s profits come from outside the UK, the performance of its constituents is linked to global economic growth.
In other words, the US–China trade deal should help the index flourish in 2020. For investors, the best way to play this trend could be with an FTSE 100 tracker fund.
Tracking global growth
As one of the biggest stock markets in the world, it’s relatively easy to find a low-cost tracker fund for the index. This will allow investors to benefit from the index’s growth with minimal effort and at minimal cost. What’s more, the great thing about the FTSE 100 is that it’s also one of the best income markets in the world.
For example, it currently supports a dividend yield of 4.3%. There are only one or two development market stock indexes that produce a level of income that even comes near to this level.
As such, even if the FTSE 100 doesn’t surge to new highs this year, investors should be able to pocket an attractive income yield. In fact, over the past decade, income has accounted for virtually all of the blue-chip index’s performance.
So overall, the improving outlook for the global economy should translate into capital gains for the FTSE 100 over the next 12 months. If this growth doesn’t materialise, investors should be well rewarded with income in the meantime.