Here’s how I’d invest £10,000 for the next FTSE 100 bull market

When will the next FTSE 100 bull market start? Part of me thinks we might already be seeing the first signs.

After all, the FTSE 100 edged briefly above 7,500 points a couple of times in the past week. And that’s after breaking the same barrier earlier in the year too.

It’s almost as if investors are champing at the bit wanting to get their cash back into FTSE 100 shares. But they keep hesitating, and getting cold feet.

The timing of a new bull market is anybody’s guess, of course. And the magic 7,500 is a meaningless number in itself. But I think we could be in for a strong five-year run, and this could be a great time to invest £10,000 in top Footsie shares.

Where would my £10,000 go?

I expect gains across most of the index. But in my experience, times like these are good to go bottom fishing — but only for quality companies. I wouldn’t simply buy the biggest fallers, which some might think have the greatest chance of big recoveries.

No, there are too many depressed FTSE 100 companies today that built up massive debts during the pandemic years. I’d look for stocks that share three characteristics. And the first is no net debt. Or at least, very little.

Essential sectors

Next, I want industries that we can’t do without. Leisure and travel? Nope, we can do fine without those. How about banking and finance? Well, the world simply can’t function without either.

As it happens, most FTSE 100 banking stocks are on low valuations. Their liquidity is fine too, and they’re paying dividends. So I’d start by going for Lloyds Banking Group or Barclays.

Finally, I want companies that have strong defensive moats. Food is a necessity, and supermarkets can be good investments. But competition is pretty much only on price, and there are many firms in the marketplace trying to undercut each other every day.

Land and homes

What about housebuilders? Well, you need a large land bank and some big investment in infrastructure to get into that business, so that’s defensive. Housing is another long-term essential. And to add to the attractions, we’ve had supply shortages for decades.

So Taylor Wimpey or Persimmon would be on my list. And, by good fortune, their valuations are low.

Energy companies also fit my criteria. But rather than pin my allegiance to fossil fuels and the price of oil, I’d rather go for an infrastructure provider. I’m talking about National Grid, which owns most of the UK’s energy distribution network. When it comes to a defensive moat, it’s hard to beat a monopoly.

Plenty of risk

Now that we are heading for a recession, my timing might be badly out and the next bull market might not occur for some time. And some of the shares I’m thinking of here could face a tough 12 months, or more.

But this is the kind of approach, and these are the kind of companies, that I think could do well when the next bull market does arrive.

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