Published On: Tue, Apr 2nd, 2024
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FTSE smashes 8,000 as Isa investors buy British again – now we’re set to beat the US, too | Personal Finance | Finance

London’s blue-chip index has underperformed global rivals for years. It has been overshadowed by the rampant returns from US technology stocks, but that has left UK shares looking fantastic value as companies like Apple and Nvidia are starting to look expensive.

Global investors have taken note with US private equity firms snapping up under-priced British companies, but now domestic investors are buying British again, as this year’s stocks and shares Isa deadline looms.

Chancellor Jeremy Hunt has been looking to create a British Isa to encourage domestic investors to invest in UK stocks, but now they are doing it anyway.

The number of UK investors buying British stocks has jumped 10 per cent in the last three months as they sniff a buying opportunity, according to research from trading and investment platform eToro.

Its global markets strategist Ben Laidlaw said the UK stock market is finally coming back in from the cold, and positive sentiment is gathering steam.

Many are buying UK shares because of “fear of missing out”, a phenomenon known to investors as FOMO, as they believe the recovery in London-listed stocks has a lot further to run and don’t want to get left behind.

FOMO is usually associated with racier assets classes like US tech mega-caps like Elon Musk‘s electric car maker Tesla and Bitcoin.

British investors are backing the UK market to outperform the US over next five years, eToro’s research shows and Laidlaw said: “They are keen to get ahead of the game.”

It’s a major turnaround after the struggles of recent years, as the financial crisis, Brexit, pandemic and cost-of-living crisis smashed investor sentiment.

Younger investors are particularly patriotic, with two in five aged between 18 and 34 backing British shares to outperform.

Older investors are more sceptical, with less than one in 10 favouring the UK, as they reckon the US and emerging markets will do better instead.

This is understandable after recent troubles yet the outlook is brighter as the Bank of England gears up to cut interest rates, with the first reduction expected in May or June.

Stocks listed on the FTSE 100 pay some of the most generous dividends in the world, with an average yield of four percent a year.

This will look even more attractive once interest rates start falling, which will drive down the returns on rival asset classes like savings accounts and bonds.

Dividends are regular payouts companies make to reward loyal shareholders and when interest rates finally start to fall they will look much more generous, Laidlaw said.

“Reinvested dividends have historically accounted for the majority of total returns in the UK market, and shareholder payouts are forecast to rise by five percent this year.”

Many investors are now wary of the so-called “Magnificent Seven” US tech stocks, Amazon, Apple, Microsoft, Meta, Tesla, Nvidia and Google-owner Alphabet.

They have smashed global stock markets for years but many now fear they look overpriced and their stellar growth may slow.

READ MORE: Turned £7,000 into £134,809. How a UK stocks and shares Isa fund beat the world

There are warning signs with Tesla shares crashing 30 percent in the first three months of 2024 and iPhone maker Apple down almost 10 per cent.

However, computer chip maker Nvidia is up another 90 per cent, as it continues to benefit from the hype over artificial intelligence.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said today’s FTSE 100 surge was driven by new data showing UK shop price inflation has dropped to a three-year low. “This raises hopes that inflation will fall back to target.”

Laith Khalaf, head of investment analysis at AJ Bell, said as the deadline for using this year’s Isa allowance looms on Friday, investors can share in UK stock market success through a low-cost exchange traded fund (ETF) tracker such as the iShares Core FTSE 100 ETF or Vanguard FTSE 250 ETF.

Invesco High Yield UK, Jupiter UK Special Situations and the City of London Investment Trust are popular actively managed investment funds.

For those who prefer individual company stocks, three of the top five most popular are high-yielding insurers: Legal & General, Phoenix Group Holdings and Aviva.

British American Tobacco, Lloyds, Vodafone and wealth manager M&G all pay high dividends and are also in demand.

British shares are back and they didn’t need Hunt’s gimmicky British Isa. Let’s hope the rally continues. As ever with investing, there are no guarantees.

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