The FTSE 100 has been holding up well during 2022. It’s flirted with the 7,000 level a few times but has not remained below it for long. And that’s a big contrast with what happened in 2020 when it plunged well below 6,000, to within shooting distance of 5,000.
Of course, we haven’t suffered the shock of an unexpected pandemic in 2022. But the bear has been roaming around many individual company’s shares. And in some cases, we’ve seen stocks plunge by as much as 50%, and more.
Commodity prices
With that being the case, why has the Footsie proved to be so resilient? I reckon the answer to that is its diverse coverage of individual companies and different sectors. For example, the big mining companies such as Rio Tinto had been performing well because of elevated commodity prices. And they were doing so just as many other stocks plunged because of concerns about the economic outlook.
The index has several big-hitting miners within its ranks such as BHP, Anglo American, Antofagasta, Glencore and Fresnillo. But the recent falls in many commodity prices has affected the sector. For example, on Wednesday 27 July, Rio Tinto reported earnings almost $4bn lower in the first half than a year earlier.
The damage to profits has been causing all these companies’ share prices to fall. But they haven’t really taken the FTSE 100 with them on their plunge. And I think that’s because falling commodity prices are good for other businesses. And we’ve seen many stock prices breaking higher within the index.
Strong businesses trading well
I’m thinking of names such as smoking products maker British American Tobacco and banking company NatWest. Also, food service company Compass and information-based analytics and decision tools provider Relx. We’ve also seen moves higher from fast-moving consumer goods giant Unilever and premium alcoholic drinks maker Diageo.
These are all strong businesses trading well. And they’ve moved right into the void created by weakening miners to prop up the index. All that adds up to the index being a potentially decent long-term investment. And I’m holding it via a low-cost index tracking fund. I see the Footsie as a decent income generator via shareholder dividends. For example, the overall yield of the index is running at around 3.7%.
A rich hunting ground
I choose to roll this dividend income right back into my Footsie tracker investment. In that way, I’m hoping to compound my gains from the index into the future. And it’s easy to do by selecting the accumulation version of the tracker fund rather than the income version.
But I’m not stopping there. The index is a rich hunting ground for potentially decent long-term investments in individual company shares. And I’ve been picking off some of the recovering stocks I’ve mentioned along with others.
A positive long-term investment outcome isn’t certain because all shares come with risks, even big, blue-chip companies. Nevertheless, I see the FTSE 100 and its constituent businesses as a good arena for attempting to build wealth.