By Craig McAvinue – 1 March, 2023
“A nation is not made wealthy by the childish accumulation of shiny metals, but is enriched by the economic prosperity of its people.”
February, the shortest month, ended with markets down, due in part to profit-taking after the bumper crop that was January. Concerns over Federal Reserve policies linger as investors continue to assess whether interest rates will remain relatively high for an extended period.
Data table is from Google Finance
When markets go backward, the USD usually surges forward, and this trend played out neatly in February.
Data table is from Google Finance
Market fluctuations are an inevitable part of investing and most follow a similar pattern. From October through November of 2022 was the last period when we saw back-to-back moves in the same direction (up), but since then the general trend has been up one month, down the next.
A notable outlier during February was the FTSE 100, which was up whilst most other markets went in the opposite direction. During the month of February, the FTSE 100 broke through the 8,000 mark for the first time in its history. After the Covid crash in March 2020, when the FTSE 100 fell more than 2,000 points to 5,500, we have seen a roughly 45% increase in the following two years.
The sector components of the FTSE 100 differ from US market indices in that technology shares do not play a significant role in its overall performance. Large sector components of this index are Oil & Gas, Consumer and Healthcare. Regular readers will know that with a long-term thinking cap on, two out of these three sectors are areas that I believe will gain you the best chance of steady growth, with Oil & Gas being the odd man out.
Recent times have shown that those invested in the Oil & Gas sector have seen very strong results. But equity investing is not based on performance during a year or even two; it’s a longer term proposition, with five years being a fair timeframe.
Examples of companies that continue to occupy a top spot in market capitalization on the FTSE 100 include Shell, AstraZeneca and Diageo, each representing one of the aforementioned sectors. All are great businesses, giants of industry and truly global, generating revenue from almost every country in the world.
There was much talk about Shell at the start of the month when it released its 2022 profits, showing a record-breaking year with profits of £32.2 billion. However taking a five-year view on these companies, £10,000 invested in each would today be worth:
The FTSE 100 is a London-based exchange so the reporting currency is GBP. The reporting currency tells only part of the story however – investors should not be misled into believing that buying this index means they are investing in the UK.
For example, Diageo and Unilever, both leading components of the FTSE 100, are consumer-driven businesses that derive over half of their revenue from Emerging Markets. The middle-class Indian factory owner who can now afford to buy Johnnie Walker whisky (a Diageo product) instead of Honey Bee, will buy Johnnie Walker again tomorrow. As will the Chinese housewife who moves from local ice cream to Unilever-owned Magnum – tomorrow she buys Magnum again. Growing middle classes are everywhere in the developing world.
These are factors that drive these new market highs and breaking notable benchmarks such as the FTSE 100 breaking 8,000.
And higher barriers will continue to be broken. 2022 was a horrific year, with so many gains being wiped out. Last month’s results clearly illustrate we are not out of the woods by any stretch.
But growth and positive returns are there … you just need to know where to find them. Maybe it’s time to order a double in the Consumer and Healthcare sectors.
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