FTSE 100 ETFs benefit as blue-chip UK index reaches new heights

Nov 6th, 2017 | By | Category: Equities

ETFs tracking the FTSE 100 Index have rallied as the UK blue-chip index closed at a new record high of 7,560 on Friday 3 November 2017, driven by a strong global economy and a weak pound. The ‘Footsie’ ended the day up just 0.07%, yet this was sufficient to tip the index past the new milestone.

FTSE 100 ETFs benefit as UK index reaches new heights

The FTSE 100 Index closed at a new record high of 7,560 on Friday 3 November 2017.

Commenting on the record, Laith Khalaf, senior analyst at brokers Hargreaves Lansdown, said: “Stock market investors continue to reap the rewards of loose monetary policy and an improving global economy. The global economy is doing pretty well at the moment, and with interest rates still staying low, that bodes well for the prospects for the stock market.”

While the Bank of England’s decision on Thursday to raise the UK’s base interest rate from 0.25% to 0.50% – the first increase in a decade – might have been expected to strengthen sterling, foreign exchange markets are seldom that simple. As Khalaf explains: “The Footsie has climbed this week on the back of a falling pound, as currency markets groaned at the Bank of England’s weak expectations for future interest rate rises.”

Service sector firms, including B&Q owner Kingfisher as well as conference organiser Informa and healthcare provider NMC Health, led the index’s upwards charge on the back of robust sales figures and successful new product launches – despite ongoing Brexit uncertainty.

Strong performance from the oil giants also helped lift the index, as a resurgent oil price and positive results from the likes of Shell and BP pushed share prices close to five-year highs.

Several ETF providers offer a FTSE 100 ETF. The cheapest and largest is the £5.1bn iShares Core FTSE 100 UCITS ETF (ISF LN) which costs 0.07%. The HSBC FTSE 100 UCITS ETF (HUKX LN) costs the same fee but has commands less AUM at £148m.

Other significant ETFs linked to the index include the Vanguard FTSE 100 UCITS ETF (VUKE LN), which holds over £2.6bn in AUM and carries a fee of 0.09%, and the UBS FTSE 100 UCITS ETF (UBO3), with over £100m in AUM and fees of 0.20%.

While the FTSE 100 hitting fresh highs always seems to rouse some market commentators into insisting the time is right to take profits before the impending sell-off, Khalaf is more sanguine about this issue.

“Of course the FTSE 100 hitting another record high does prompt questions about share prices overheating, though the UK’s headline index is a poor barometer of the value in the stock market,” he said. “If you look more closely at the long-term history of stock prices relative to company earnings, they are somewhat boringly in the middle of their range, neither particularly cheap nor exceptionally expensive.

“The pound is the wild card in all of this, which could run hot or cold depending on how the Brexit negotiations proceed. A stronger pound would have a knock on negative effect on the share prices of the big international firms in the Footsie, so as ever it pays to keep a diversified portfolio.”

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