Wasted time

The FTSE 100 is officially in negative territory for the year. As of the market close on Friday 12th December, the return on the index so far this year stands at -6.7%. Thank goodness the average dividend yield on the FTSE 100 is around 3.5% per annum, otherwise we would be really wasting our time.

I’m happy to report over the same timescale our Moderate portfolio has grown by 4.9%.

The miserable performance of the FTSE 100 has more to do with the make-up of the index. It isn’t the 100 best shares, merely the largest. I have commented on why the index is such a poor long term hold here before. (Those share details were correct in 2011) There is still a concentration of similar shares, which gives poor diversification. There are too many;

  • Oil producers such as Shell and BP.
  • Supermarkets such as Tesco, Morrison and Sainsbury.
  • Banks such as Barclays, Lloyds, HSBC and Standard Chartered.

It’s no wonder the index isn’t producing strong double digit returns.

Thankfully I don’t suffer from an investment affliction called home market bias where some investment advisers do not look beyond these shores. We have made money this year so far because I understand that diversification is necessary. Not all of our eggs are in the one UK basket. Our eggs are spread all over the world. I only invest in the FTSE 100 these days as a short term smash and grab. In low and then out after a recovery.

Things can only get better

Yesterday I filled the car up with petrol at Tesco. After I got my 4p per litre Clubcard discount, each litre cost me £1.12. Now not too long ago that was £1.37 per litre. My fuel costs and everyone else’s are almost 20% lower. The cost of delivery for all the stuff in the supermarket is almost 20% lower. So are some manufacturing costs. OK, some oil companies won’t make as much profit, but with all the extra in consumers pockets now, perhaps many other businesses will make higher profits.

Lower fuel costs will take the pressure off inflation. Higher interest rates in the short term? I don’t think so. OPEC isn’t scheduled to convene again until June and the Saudis refuse to reduce production. So there is a glut of oil and hence lower oil prices.

At this time of year I normally mention the possibility of a Santa Rally. Since the FTSE 100 hasn’t grown all year, the likelihood of it ending higher than it is today must be a distinct possibility. 7000 anyone?