After years of underperformance versus the S&P 500, the FTSE 100 is finally having its day in the sun. In fact, make that many months in the sun because the UK’s blue-chip index has been strong for some time now.
This is obviously great for UK investors, many of whom have their ISAs and SIPPs stuffed with FTSE 100 shares. But is this an Indian summer that’s set to come to a frosty end? Or have we entered a new financial climate altogether?
What’s going on?
So far in 2026, the FTSE 100 has gained 6.5% while the S&P 500 has dipped 0.9%. However, Footsie companies pay far higher dividends on average, and when we factor those in over the past five years, the two indexes are almost level on a total return basis.
This is some turnaround, though the US index is still the longer-term winner, primarily due to the massive gains from tech stocks like Microsoft, Apple, Broadcom, Nvidia, and Tesla. The powerful digital revolution that has swept the globe has created stock market juggernauts akin to corporate nations.
However, after two and a bit years of the AI boom, investors are getting nervous about whether these companies can actually monetise the technology fast enough to justify their massive capital outlays and valuations.
As a result, money has been moving out of Silicon Valley and into ‘old economy’ stocks like banks, utilities, oil majors, miners, and supermarkets. These pay dividends and trade at much cheaper valuations.
Of course, these are exactly the kinds of stocks writers here at The Motley Fool have been championing for years. They have looked fundamentally undervalued for ages and also paid generous dividends.
Moreover, these non-tech firms are seen as AI-resistant. That is, they’re ‘heavy-asset, low-obsolescence’ (HALO) companies insulated from technological disruption.
Global investors are finally starting to wake up and see the (HALO) light!
Can it continue?
Of course, the stock market goes in cycles, so rotations from growth to value stocks is nothing new. If investors flipped back towards high-growth shares, the FTSE 100 could start underperforming again (at least relative to the S&P 500).
However, the rapid development of AI technology — particularly with autonomous agents — continues to spook investors. So the rotation towards FTSE 100 shares still has legs, in my opinion.
Therefore, investors could consider something like the iShares Core FTSE 100 UCITS ETF (LSE:CUKX). As we can see below, this index tracker has really taken off over the past few months.
This accumulating version of the ETF automatically reinvests any dividends paid by the companies (like Shell, Legal & General, and HSBC) back into the fund. Currently, the FTSE 100 offers a 3% dividend yield, so reinvesting this alongside any share price gains helps the fund grow faster over time.
To my mind, there’s a rock-solid mix of high-quality dividend stocks in the FTSE 100, ranging from HSBC and Tesco to Aviva and Admiral.
As mentioned, the FTSE 100 could always go out of fashion again. So I would only consider a Footsie index tracker as part of a diversified ISA portfolio that also had a few growth stocks in there.
