Image source: Getty Images
When compared to the S&P 500, FTSE shares in general have delivered underwhelming performance lately. Driven by AI-mania and rallying tech stocks, the US market has seen exceptional growth recently.
However, all that may change soon. Trump has promised sweeping trade tariffs that leave the future of the US economy in question. If things don’t go as planned, the S&P 500’s performance may drop off. Both Goldman Sachs and JP Morgan are bearish about the index’s future, expecting annual growth of only 6% at best over the coming decade. The forecast is partly due to a belief that the index is highly overvalued.
Here in old Blighty, we haven’t seen the eyewatering returns of groundbreaking tech stocks. But we do have a wealth of well-established high-quality businesses with low volatility and reliable returns. As such, a faltering US economy could make way for more impressive growth back home.
Investors may want to consider the following two FTSE stocks as a hedge against potential volatility abroad.
International Consolidated Airlines Group
The parent company of British Airways, International Consolidated Airlines Group (LSE: IAG), has been doing well lately, gaining a massive 122.6% in the past year alone. But the gains only go a short way to recovering losses incurred during Covid: it’s still down 23.6% over five years.
With air travel now back on track and busier than ever, I think the stock has more fuel in the tank. Back in 2018, analysts were optimistic, eyeing price targets as high as 600p for the stock. That would be close to double the current price.
But the threat isn’t gone entirely. Covid taught us a lot about dealing with a pandemic but not enough to stop travel bans should a similar contagion emerge. If that occurs, IAG stock could easily plunge 70% as it did in early 2020.
Better planning may lessen the impact but some losses would be unavoidable.
Barring any further travel disruptions, it could reach 600p by 2030. If it does, it would equate to annualised returns of 13.2%.
Alpha Group International
Alpha Group International (LSE: ALPH) is a lesser-known FTSE 250 stock that could benefit from international trade disruption. The company specialises in the management of foreign exchange risk for corporate businesses.
It’s a relatively small, £954.7m-capitalisation company with just less than 500 employees and £53.3m in revenue. But recent growth is impressive, with revenue up 19% year on year and net income up 13.3%. Forecasters expect earnings per share to reach £1.15 by 2026 — a 70% rise from current levels.
If the £22 share price follows suit, it could reach £40 in the next five years, an annualised return of 12.47%. That’s not an unrealistic estimate, considering the share price doubled between the summer of 2020 and 2021. Since then, return on equity (ROE) has climbed from 13.9% to a massive 48.15%.
Despite these impressive figures, growth has been slower recently. This is likely due to economic challenges in the finance sector, particularly high interest rates that curb spending. If rate cuts materialise this year it could help dissipate these issues but if not, growth may stall again.
I think both stocks are worth considering as strong contenders to outpace the S&P 500 by 2030.
