Financial Times Stock Exchange, also called “footsie”, is one of the most popular and most tradable indices.
This index is the mirror of the 100 best UK companies, known as blue chips, its value is calculated in real time every second. Theoretical the value of index is representing the value of the shares traded in the stock exchange where the index is representing. An index like FTSE 100 also represents the general market performance, or conditions in the UK. When people ask how is UK doing? The answer can be found in the FTSE 100
Why buy the FTSE 100?
Footsie represents 100 companies from different industries meaning that no one entity can manipulate the price, as a single entity can manipulate the price of a single share of a single company by only one person or one factor. FTSE’s value is more stable and more secure in other words in offering diversification in your investments and a portfolio, a staple of risk management. The stability of the FTSE makes it an attractive investment.
When to buy FTSE 100?
There are many theories to guide you when is the best time to buy. One theory that is reasonable while working under normal market conditions, meaning that the country or the world is not in dip recession or recovering from dip recession, can be broken down into for parts.
First, take into account the annual growth forecast of BOE. As for 2018 the annual growth forecast is 1.7%
Second, take into account the bond’s yield. UK 10 year bond yield is now standing at 1.5%
Third, there are many private bonds that are also government backed promising return between 8-10% per year
Comparing the 3 numbers above is given to understand that the UK economy in 2018 will grow above 1.7% but not more that 10%. Although statistical indices are overperforming bond yields I will take as indices growth for 2018 the bigger number the 10% which is the highest bond yield of all.
Forth factor to take into account is the CBOE VIX volatility index also known as fear index currently trading around 16, down from 50 from last month. This index when it is high shows uncertainty in the market, and uncertainty, is translated into selling
share including indices while investors are going into safe haven assets like GOLD, CHF and JPY. As for today the VIX has stabilized at the low level of 16 meaning that the panic of sell-off from last month is over.
Compare now the price of FTSE 100 as at January 2nd 2018 and the current price
On January the 2nd the price of FTSE was 7689, today’s price is 7213 making the overall movement, -6.5%. For the 2018 case scenario, this doesn’t means that we are in recession or the market under performs, it is just a correction from last year’s scam rally. The scam rally being, last year should have had an increase to a maximum 10%. Starting from January 2016 – December 2017 FTSE climb 33% in 2 years that’s much higher above my theory average of 10% per year so it was obvious that a correction will take place and it’s proved that it took place in February 2017 when equity markets including FTSE dropped 15% in few days.
Accordingly, now is the time to buy FTSE and target a 10 % increase from this level 7213 meaning that you can take profit at 7934. It does not necessary means that this target will be achieved by the end of 2018.
Apart from the increase in the price of index, the secondary benefit by keeping long positions on FTSE is the dividends from the 100 shares included in the index.