When inflation is brought into the equation, things look even more dire for the FTSE 100. By way of comparison, property in London has risen, according to a conservative estimate, over 200% in the same period, with some areas seeing a 7x lift. This indicates just how much purchasing power I’d have lost with the FTSE 100.

By contrast, the S&P 500 has been delivering about 12.5% annually for the last 20 years, and my money would have now more than doubled since summer 2000 (again assuming that I reinvested my dividends). This would have allowed me to outstrip CPI inflation significantly, without taking too much risk.

Has it always been this bad?

No. If I’d have invested in a FTSE 100 index fund between July 1984 and July 2000, I’d have seen my shares roughly 5x. With that said, I’d have seen my S&P 500 shares roughly 10x over the same period. So, while the S&P 500 returns have long been higher, the gap between the returns has widened.

Speculating about why this might be the case, what jumps out at me is the obvious difference in the sector exposures of each index. Whereas defensive and value stocks such as oil and bricks-and-mortar retail companies dominate the FTSE 100, technology companies make up approximately a third of the S&P 500 index, and several of these (i.e. the FAANGs) have exploded in value over the last decade.

Could the divergence also have something to do with numbers? After all, the S&P contains 500 companies, while the FTSE only has 100. It might appear this way, since the FTSE 250 has seriously outperformed the FTSE 100. Then again, the FTSE 250 consists of smaller-cap stocks, which can lead to relative outperformance. Even then, it’s lagged behind its US peers (such as the S&P 400).

So why go for the FTSE 100?

Buying a FTSE 100 index might make sense if I wanted value stocks. The average P/E ratio of FTSE 100 companies has been around 13 over the past 10 years, compared to 23 for the S&P 500. But are some things cheap for a reason?

The FTSE also pays out a higher dividend than the S&P 500 (typically just over 3%, compared to the S&P 500’s roughly 2%). But the only way that I could have seen real returns would have been by reinvesting those dividends (or, of course, by buying the dips). Still, the same could be said for the S&P 500, so it’s hardly a game-changer.  

Maybe there’s a dose of patriotism here, too. I like to think that my stock purchases might be doing something to help the UK economy. Yet the problem, for me, is that the sector that I believe has the most upside, tech, is hardly represented in the FTSE 100.

Sunny skies ahead?

There’s no inherent reason why UK large caps should keep underperforming, but long-term trends can become self-fulfilling prophecies unless something is done to defy them.

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R&D potential 

The recent announcement by Meta that its priority is to deliver the next generation a radically enhanced mode of communication will inevitably involve huge investment: an expected $10 billion in 2021 alone. But I’m welcoming this move, and buying shares in the company.

While I’m seeing Meta as a long-term play, since it will take years for the company to realise its metaverse vision fully, some of its R&D investments are already bearing fruit. Take, for example, the exciting development of ReSkin and DIGIT (with Carnegie Mellon University), which could allow for “embodied” virtual experiences.

Meta also plans to open physical stores to introduce users to products from its Reality Labs division, which could include Oculus headsets, Ray-Ban Stories voice-activated sunglasses, and, eventually, augmented reality headsets. While there is a certain irony to this move into brick-and-mortar shops, it will likely increase Meta’s revenue streams and suggests the company’s desire to bring users along with it.

Network effects

Beyond spending on innovation, I think Meta has another big advantage: the networks that make up its existing ecosystem. According to Metcalfe’s Law, the value of a network is proportional to the square of the number of nodes in that network. Meta has a massive user base (around 3.6 billion), and should be able to exploit this early advantage as it builds a new model for connectivity.

Crucially, CEO Mark Zuckerberg has stressed the importance of interoperability, which might, for example, mean allowing users in the metaverse to own and exchange NFTs from other platforms. As far as I can see, the main risk is that Meta ends up prioritising corporate exclusivity over interoperability and thus loses potential users to less hierarchical alternatives.

Centralisation

While Microsoft, NVIDIA, Epic Games, and others are all investing heavily in software and hardware that could supercharge the metaverse — and it will be exciting to watch their plans unfold — Meta will also have to compete with decentralised networks. Decentraland is perhaps the best known, and “legacy” institutions are already making use of this platform, such as Sotheby’s with its NFT auctions.

But the fact that Meta is founder-led means that it may be able to act faster and more decisively when building a digital universe. In decentralised metaverses, individual users have their own educational and social goals, whereas Meta can devise a strategic plan for the communal culture of its metaverse, and Meta’s ESG concerns are already evident from recent partnerships with the Digital Wellness Lab, Colorintech, and various other groups focused on well-being and inclusion.

Winner takes all?

As Meta has stressed, the metaverse will not be a single product but numerous connected ones, many of which are likely to be developed by other companies across the hardware, software, telecommunications, and gaming sectors. I’m therefore consciously viewing this investment as just a piece of a puzzle and am aware that patience will be key. With that said, the fact that Meta has committed vast sums to the project and the perceptible confidence behind its recent announcement suggests to me that Facebook’s transformation is not in name only.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Natasha Bailey owns shares in Meta. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

10 stocks to gain exposure in my ISA

I’m adding Bitcoin to my ISA in various ways. Scoring highly in terms of Bitcoin exposure are MicroStrategy, Galaxy Digital Holdings, and Voyager Digital, the last of which is up 2,400% on the year but should have plenty of room to grow through the later stages of this bull run. MicroStrategy is also interesting because it currently offers Bitcoin at a discount: the Bitcoin that I’d receive with each share is roughly 8% cheaper than if I were to buy on ‘spot’ (i.e. via an exchange).

Better known than the above, but also granting me some direct exposure, is Tesla, though of course there are other considerations here. It is rumoured that Tesla is on the verge of resuming Bitcoin payments for its cars, which would only further accelerate the cryptocurrency’s mainstream adoption. 

Then there are mining stocks. I already own Argo Blockchain, though I particularly like Hut 8 Mining Corp, which is based in the energy-rich Alberta. Following Tesla’s backtracking on Bitcoin payments on environmental grounds this May, there’s been widespread concern about the sustainability of Bitcoin mining, and I appreciate Hut 8’s clean energy initiatives. The company also holds the highest number of self-mined Bitcoin out of any publicly-traded company.

While the above give me some direct exposure to Bitcoin, I’m also looking at companies with crypto at the core of their operations. One of them is Coinbase Global, which has recently announced plans to launch an NFT marketplace, offer custodial services for Meta’s crypto project, and develop a cloud service for the crypto industry. Its long-term future looks bright.

Diversifying my holdings further, I’m thinking of adding a small amount to Square, Visa, and Mastercard, the last of which jumped on the crypto-payment bandwagon only last week. All of these companies provide indispensable rails between traditional and decentralised finance, and will help to secure Bitcoin’s role in cross-border transactions.

Thematic crypto ETFs are no doubt around the corner, but adding a little to all or some of the above means that I won’t miss the boat.

A high-risk strategy

It goes without saying that buying Bitcoin and crypto-orientated stocks is a risky strategy.

Companies with sizeable Bitcoin exposure are vulnerable to price fluctuations, while exchanges are sensitive to trading volumes. Since Decentralised Finance (DeFi) is also a young industry, there’s plenty of competition risk. On these grounds, I’ll be watching these stocks carefully. 

Nonetheless, in the current financial environment, the risk of not having exposure to the wider crypto industry is also significant. Perhaps I’ll start by bodyboarding rather than surfing these mammoth waves.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Natasha Bailey owns shares in Argo Blockchain and Tesla. The Motley Fool UK has recommended Mastercard. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pain ahead

Readers are probably fearful that the worst is yet to come for Edinburgh Worldwide, given the very real prospect of Fed tapering in November and of imminent interest rate hikes. One might ask: isn’t this a bad moment to jump into a trust consisting of small-cap tech holdings with valuations premised on future earnings, which are likely to be ultra-sensitive to hawkish monetary policy? But one could also ask: is the trust, with its emphasis on building relationships with immature companies, now a cheaper, more exciting alternative to the large-cap focused Scottish Mortgage?

The point that Svetlana Viteva, Edinburgh Worldwide’s Deputy Manager, made a couple of years ago that “if you do [recognise our holdings], frankly we’re probably not doing our job” could help me to decide. Inflationary pressures may persist for the early part of this cycle as the economy re-gears, and tech investors, large and small, could be in for a bumpy ride.

But it is becoming increasingly apparent that AI, robotics, autonomous vehicles, and next-generation internet, as well as innovative biotech and healthcare solutions, are ways out of the pandemic (and related supply-chain problems) as much as they are legacies of it. In the longer term, Edinburgh Worldwide’s holdings will almost certainly help to propel deflationary forces, and, if they can catch the right waves, allow me to outstrip CPI inflation massively, too. If I were to invest further, I could, in turn, benefit from resultant wealth generation.

Capturing long-term growth

Edinburgh Worldwide has a bold allocation to healthcare and biotech (currently around 30%) and stakes in hard-to-acquire private companies at the forefront of emergent autonomous fields (such as SpaceX and PsiQuantum). In fact, these private companies make up roughly 10% of the trust’s portfolio. By gaining access to exciting unlisted opportunities, I believe that increasing my stake in Edinburgh Worldwide would ideally place me to capture growth in the coming years.

I might have to put up with some short-term uncertainty and temper my immediate growth expectations, but I believe that Edinburgh Worldwide remains among the best alternatives to Cathy Wood’s iconic ARK Innovation ETF and is currently trading at a discount of roughly 7%. Given the bulging size of many of Scottish Mortgage’s top holdings, and with fears that a blow-off top is around the corner for mega-cap US equities that have grown fat on stimulus, perhaps it is time for me to once again turn my head to this rather demure younger brother.

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Natasha Bailey owns shares in Edinburgh Worldwide. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.