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This has been a brilliant year for Britain’s flagship index of leading companies. The FTSE 100 index has grown 15% so far in 2025, meaning it is now 50% higher than five years ago.
That strong performance has included the index repeatedly setting new all-time highs this year. Could it go even higher in 2026?
Potential for further growth
I think the short answer is yes. I do see the potential for the index to move higher next year. After all, 2025 has seen a sluggish UK economy and a number of risks to financial stability, from tariff disputes to geopolitical disputes. But despite that, the FTSE 100 has been having a good run.
If the wider context gets better next year and the British economy moves firmly into growth mode, I think that could help support a higher price for the flagship index.
Ongoing uncertainties
However, for now it remains to be seen how likely that scenario may be. If the UK continues to struggle with sluggish growth, that may hamper the prospects for the FTSE 100 albeit this year has not exactly demonstrated that.
But the bigger risk I see is if the British economy gets notably weaker – or if the world economy wobbles.
In either case, I would not be surprised to see a decline in the value of the FTSE 100.
Taking a long-term view
Still, I am an investor with a long-term time horizon. Over the long run, I expect the UK economy to perform well. That makes me feel bullish about the long-term prospects for the flagship index.
At the moment, its valuation does not grab me as particularly attractive though. I have no plans to invest in a FTSE 100 tracker in the foreseeable future.
Hunting for individual shares
That does not mean I am ignoring FTSE shares altogether however. Rather than buying into a tracker, I continue to hunt for individual shares within the index that I think offer me good value from a long-term perspective.
Sometimes I find them and buy them, as I have been doing lately with JD Sports.
Waiting for the right moment
But on other occasions, I find a share I like but at a price that I do not. So I add it to my watchlist. In the event that its price tumbles, I plan to revisit the investment case to decide then whether to invest.
One such share on my radar is FTSE 100 engineering specialist Spirax Group (LSE: SPX). Over decades, it has built a sizeable and profitable business by targeting industrial users with services such as bespoke steam engineering components.
Steam may seem like a technology of the past but in fact it is a vital part of many industrial processes. With its expertise, global reach, large client base and ability to deliver unique solutions, Spirax has developed significant pricing power.
The company’s cash generation has enabled it to grow its dividend per share annually for decades.
Unsurprisingly, the market likes this and Spirax shares sell for 31 times earnings. That valuation is too rich for me. After all, the company faces risks including ongoing weak demand in its China business.
However, I will continue to keep Spirax firmly on my radar!
