Experts are saying that despite discounts not being as generous due to supply-side constraints, total spending on Black Friday will rise this year. Given the expected surge in spending over the weekend, I am thinking about whether a FTSE 100 ETF could be a good buy.
What I am thinking
An ETF (exchange traded fund) is a fund that tracks an index or sector and can be bought and sold like a share through most online brokers. My thinking is that because a FTSE 100 ETF offers access to all the companies in the index, this could be the best approach for me.
The FTSE 100 is the index of the largest 100 companies by market capitalisation listed on the London Stock Exchange. It’s comprised of several sectors and I think there are a couple that would undoubtedly benefit from an increase in Black Friday spending. Specifically, the consumer discretionary and consumer staples components of the index are likely to see a boost.
Looking at the companies in these sectors is like a who’s who of UK retailing. For example, specialty retailers like Burberry Group, Next and JD Sports are joined by the big UK supermarkets like Tesco and J Sainsbury.
Selecting an ETF
Unsurprisingly, the FTSE 100 is well represented in the ETF world and there is a myriad of choices. Most, if not all, of the major investment companies offer a fund. Though other investors may think differently, I look at making my choice based upon the three factors that are most important to me. That is fund size, expense ratio and whether I want dividends or not.
The fund I am looking at is iShares FTSE 100 (LSE:ISF). By fund size, it is the largest by a mile with a size of over £10bn. It is also the cheapest with an ongoing charge of 0.07%.
The expense ratio is worth mentioning further. As there is so much competition in this space, the costs are low. The FTSE 100 ETFs are some of the lowest-cost funds in the UK and many of the funds from different investment companies also have the same low ongoing charge as this.
Finally, this fund pays a dividend. One of the major benefits of the FTSE 100 is that there are so many mature large companies in the index that can pay dividends. Although there is a choice of whether to have the accumulation or dividend-paying option of this ETF, for me I take the dividend option every time. Currently, the dividend yield is 3.71%.
Should I buy it now?
Although others may disagree with my choice, I am a big fan of this ETF. However, all things considered, I think there might be better options for me to take advantage of the inevitable uptick in sales from Black Friday this year. Online sales are likely to rise as a proportion of spending over the weekend. I can’t help thinking that investing in some pure e-commerce or technology firms might be a better bet.