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Though I’m a UK-based investor, my family portfolio is mostly invested in American stocks. That’s partly because the US stock market is so vast, being larger than all other stock markets combined. Also, the US S&P 500 and Nasdaq Composite are two of the most-tracked indexes among global investors. Nevertheless, the UK’s FTSE 100 has overtaken its US counterpart lately.
Fabulous FTSE
Since the FTSE 100’s launch in 1984, it has sometimes beaten the S&P 500 over long periods. However, since the global financial crisis of 2007/09, the growth-dominated US index has thrashed its value-orientated British cousin.
Over five years, the main US market index has leapt by 87.5%, easily beating the Footsie’s 47.4% gain over this period. But more recently, the American index is up 16.8% this calendar year, versus 18.2% for its British rival.
Furthermore, the FTSE 100 wins over 12 months, rising 15.5%, versus 13.4% for its American peer. This recent trend may come as a surprise to many, but not me. I have repeatedly argued that UK shares seem cheap, whereas US stocks are among the most expensive they have ever been.
And that’s not all
What’s more, the above returns do not include dividends: regular cash payments made by some listed companies to shareholders.
Traditionally, American companies are stingy with dividends, preferring to reinvest profits to drive future growth. Conversely, many FTSE 100 companies pay generous dividends to their patient owners.
Looking at total returns — capital gains plus dividends — the S&P 500 has returned 14.6% over one year. The FTSE’s total return over this timescale is 20.5%, a margin of 5.9 percentage points.
In addition, because of the stronger pound, the return from the S&P 500 in British pounds is lower. Over one year, the US index has produced a total return of just 9.5% in sterling terms.
In summary, British investors would have been far better off owning the FTSE 100 than the S&P 500 over the last 12 months.
Big, British…and beautiful?
As a value and income investor, I see hidden pockets of value in the London stock market. For example, one UK share that seems mispriced to me is Diageo (LSE: DGE).
Shares in this global drinks Goliath have crashed hard in 2025, driven lower by falling alcohol sales to the under-30s. Unfortunately for Diageo and its peers, boozy nights out face stiff competition from social media, video gaming, and (legal and illicit) cannabis. As a result, global alcohol sales have fallen steeply following their post-lockdown surge.
Despite this downturn, I suspect there is value lurking within this FTSE 100 ‘fallen angel’. As I write, Diageo shares trade at 1,636.24p, valuing the group at £36.3bn. The share price has crashed 32.8% over one year and 45.6% over five.
This price plunge has pushed up Diageo’s dividend yield to almost 4.9% a year — over 1.5 times the FTSE 100’s yearly cash yield of 3.2%. To me, this indicates that these shares are undervalued and perhaps due a re-rating to higher levels. (Note: at its 52-week high, the share price hit 2,619.5p on 13 December 2024.)
Lastly, I could be wrong and Diageo’s negative sales growth could continue. But I’m hopeful that 2026 will be better than 2025, especially under the new CEO. Of course, there may be even better value hiding elsewhere…
