When might the FTSE 100 hit 10,000?

Important information - investment values and income from investments can go down as well as up, so you may get back less than you invest.

Chart 2: Jurassic Park?

It is probably more useful, therefore, to dive under the bonnet.

Critics have described London as the ‘Jurassic Park’ of stock exchanges. This is because the FTSE 100 is heavily weighted towards older industries such as banking, oil, and tobacco. These sectors tend to pay generous dividends, but they are not known for their rapid growth.

Technology companies account for just 3.5% of the FTSE 100, compared with a third of the S&P 500. This is one of the key reasons why the UK has tailed behind North America over the past decade, from both a returns and valuation perspective.

Chart 3: Standout stars

The FTSE 100’s ‘old fashioned’ status is starting to work in its favour, however. Higher interest rates have turbocharged banks after years of underperformance. Meanwhile, miners such as Fresnillo are riding high as a result of the higher gold price.

• Read: What is the best way to invest in gold - ETFs or gold miners?

The stand-out sector, however, has been defence. Since governments across Europe pledged to increase their military spending earlier this year, shares in the likes of Babcock International and Rolls-Royce have jumped.

Rolls Royce’s success actually preceded the latest defence rally. Under chief executive Turfan Erginbilgiç, who took over in 2023, the company’s revenue, profit and cashflow have surged, and debt has fallen, prompting analysts to repeatedly upgrade their forecasts.

Chart 4: Bargain hunt

No one can know for certain whether these companies or sectors will keep performing. Gold miners have a habit of making blunders when times are good, and the outlook for banks is uncertain as interest rates slowly come down.

There is still a big factor working in the FTSE’s favour, however: valuation. Sentiment has improved towards UK companies this year, but the FTSE 100 still lags the US and Europe from a price/earnings perspective. The discrepancy has become more extreme since 2021.

As investors diversify away from the US market - which is looking increasingly expensive and concentrated - there is still plenty of room for UK valuations to improve. It is also worth noting that FTSE 100 companies are very exposed to the American economy: they make about a quarter of their sales in the country. Arguably, therefore, they provide a way to buy into the US at a discount.

It is not quite this simple though. Growth is a key consideration for investors, and US stocks have been growing faster than UK ones. When this is factored in, the valuation discrepancy between the two regions looks less extreme - as shown by the PEG ratio.

The PEG ratio is the more sophisticated cousin of price/earnings ratio. It tells investors how expensive a stock or index is relative to how fast it is expected to grow, rather than relying entirely on a static earnings figure. The FTSE 100 has a PEG ratio of 1.7, while the S&P 500 commands a ratio of 2.2. In other words, there’s a gap, but not a gulf.

How to invest in the FTSE 100

There are lots of ways to invest in the UK market. Those who want low fees and low fuss may be drawn to index trackers such as the iShares Core FTSE 100 ETF.

You may prefer an active approach, however. The FTF Martin Currie UK Equity Income Fund is one of three actively managed UK funds on Fidelity’s Select 50 list.

Managed by Ben Russon, Will Bradwell and Joanne Rands out of Leeds, this fund aims to generate a higher income than the FTSE All-Share Index plus investment growth over a three to five-year period after fees and costs. Its holdings include some of the UK’s largest dividend payers, including Unilever, Shell and AstraZeneca, as well as some mid-cap companies.

Other active funds on the Select 50 include the Fidelity Special Situations Fund and the Liontrust UK Growth Fund.

• Read: Could the Budget boost Britain's unloved stock market?
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• Watch: Value investing - finding the cheapest stock markets

Past performance is not a reliable indicator of future returns

Source: LSEG, total returns from 31.10.20 to 31.10.25. Excludes initial charge.