The S&P 500 is up 100% over the last five years. That’s an average annual return of just under 15%, which I think pretty much any long-term investor should be pleased with.
During this time, the FTSE 100 has managed a slightly more modest 85% – or 13% per year. But some of its constituents have significantly outperformed the US index.
FTSE 100 outperformers
Have a guess at how many FTSE 100 stocks have beaten the S&P 500 over the last five years. I’ll wait…
You’re wrong (probably) – the number is actually 25, which is more than I was expecting. And the list of outperformers is a pretty eclectic mix:
| Rolls-Royce | 3i Group | Centrica | BAE Systems | NatWest Group |
| Marks & Spencer | Babcock International | Airtel Africa | Barclays | Standard Chartered |
| Diploma | Next | Lloyds Banking Group | InterContinental Hotels Group | International Consolidated Airlines Group |
| Weir Group | IMI | HSBC | Pershing Square | Compass Group |
| Beazley | Shell | Melrose | RELX | Antofagasta |
There’s no single reason why these stocks have been better than the S&P 500 (and the rest of the FTSE 100). But there is a common theme that applies to a lot of them.
Covid-19
The majority of the stocks on this list are in a much better position now than they were five years ago. And the reason is they were – in some way or another – being disrupted by Covid-19.
Banks like Barclays and NatWest were dealing with some of the lowest interest rates in decades. This weighed on lending margins, which have recovered as things have normalised recently.
Next is another example. The company’s stores were designated as ‘non-essential’ during the pandemic and therefore closed, causing business to decline in a big way.
Travel restrictions also significantly impacted companies like Rolls-Royce and International Consolidated Airlines Group. But both have managed strong recoveries since.
The pandemic is (hopefully) not about to be repeated, but the big question for investors is which – if any – of these stocks can continue to do well. And one in particular stands out to me.
Looking ahead
The stock is Compass Group (LSE:CPG). The contract catering firm has benefitted from live events resuming since the end of the pandemic, but I think it has some long-term competitive strengths.
The company’s big advantage is its scale, which it uses to negotiate better prices for ingredients than its competitors. This gives it the ability to charge lower prices to customers.
Over time, the firm has expanded its presence – and thus strengthened its advantage – by acquiring other businesses. This allows it to benefit from local expertise as well as global scale.
Buying other businesses can be risky. Overpaying for an acquisition can set a company back years and this is something that can’t be entirely ignored.
Ultimately though, a leading position in a growing market is a powerful combination. And it’s why I think investors should consider it as a potential outperformer in the future.
Long-term investing
Warren Buffett says investing well is about being greedy when others are fearful. And that’s a theme that has run through the FTSE 100’s top-performing stocks over the last five years.
The question investors need to consider is which companies still have strong growth prospects. I think the list is smaller, but there are still opportunities that are worth considering.
