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Up to now, 2023 has not been a fantastic yr for large-cap UK shares. Certainly, the elite FTSE 100 index is up lower than 0.5% since 30 December 2022. And over one yr, the Footsie is up 2.8% (all returns exclude money dividends).
The FTSE 100 is a flop
What’s extra, the UK’s important market index has been a disappointment over 5 years, gaining simply 0.7%. In distinction, the US S&P 500 has risen by 55.6% over the identical interval. In brief, proudly owning shares in giant UK-listed companies has largely been a thankless activity since 2018 (and earlier than).
Nevertheless, after lagging different main inventory markets, the Ftse 100 appears to be like low-cost as chips to me nowadays. It trades on a lowly 10.8 occasions earnings, delivering an earnings yield of 9.3%. Additionally, its dividend yield of round 4.1% a yr is roofed virtually 2.3 occasions by earnings. To me, these are robust indicators to purchase British.
My worst FTSE 100 share
Then once more, I additionally thought UK shares seemed too low-cost final yr, so my spouse and I went on an prolonged purchasing spree for FTSE 350 shares. When it was executed, we owned 15 new FTSE 100 shares and 5 new FTSE 250 holdings.
Whereas we’re largely pleased with our new shares, I’ve made a few howlers. To be sincere, that’s virtually to be anticipated, on condition that I picked 20 new shares. However, right here is the dirtiest canine from my FTSE 100 discount hunt.
My FTSE failure: Persimmon
The shares of housebuilder Persimmon (LSE: PSN) had been my worst inventory decide of 2022/23. In late July of final yr, we paid an all-in worth of 1,856p a share for our stake within the York-based property firm. We did so after the share worth had already fallen £10 from its end-2021 shut of two,856p.
Sadly, Persimmon inventory had a lot, a lot additional to fall. It lastly bottomed out at its 2023 low of 953p on 7 July. At that time, we had been nursing a paper lack of virtually half (-48.7%). Ouch.
As I write, the share worth has recovered to 1,071p, valuing this group at £3.4bn. This collapse in its market worth led to Persimmon being expelled from the FTSE 100 within the newest quarterly evaluate on 30 August. Then once more, the inventory is up 8.8% from final week’s lows, so maybe it is a turning level?
Given the state of the UK property market proper now, I wouldn’t purchase housebuilder shares shares. Elevated inflation, sky-high power payments, and rising rates of interest are hammering home costs. Additionally, gross sales are nearing 11-year lows and mortgage approvals fell by a tenth from June to July.
With extra ache to come back for housebuilders, I wouldn’t purchase this explicit inventory right now. That’s largely as a result of Persimmon slashed its dividend by 70% in anticipation of decrease income and margins.
That mentioned, will we promote not our stake, as a result of I do not know when the following housing restoration will arrive. And with the share worth buying and selling at related ranges to March 2013, Persimmon may very well be a restoration play for affected person buyers. In order that’s why I haven’t ditched my #1 canine from the FTSE 100!
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