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MARKET COMMENT
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The FTSE 100, the FTSE 250, the FTSE 350, the FTSE All-Share or the FTSE Small-Cap: which is the best index to track? In theory, the 100, 350 or All-Share ought to be the pick of the bunch. With no upper limit to the stock market's value, followers of these indices should benefit from shares essentially growing ad infinitum. On the other hand, the prospects of the mid-cap 250 and smaller company indices are inherently restricted. When a company makes progress within these lower tiers, it eventually gets promoted to the index above. Well, so much for the theory. The table shows how the five main London indices have performed over time, with dividends reinvested:
Index
1 year
3 years
5 years
10 years
Since
01/01/1986
FTSE 100
+25%
-22%
-14%
+81%
+527%
FTSE 250
+54%
-1%
+36%
+110%
+723%
FTSE 350
+28%
-19%
-2%
+81%
+545%
FTSE All-Share
+29%
-19%
-7%
+78%
+538%
FTSE Small-Cap
+56%
-14%
+35%
+69%
+468%
The 250 index has consistently outrun its four counterparts. Only in the last twelve months has the mid-cap benchmark been lagging, though its 54% gain versus the 56% from smaller companies is hardly a disaster.
So why have medium-sized firms outperformed?
Reasons could include greater diversification. The mid-cap index, with its largest member weighting at 1.2%, isn't at the whim of the oil, banking and pharmaceutical heavyweights that dominate the 100, 350 and All-Share. But then again, nor is the 345-member small-cap index, whose largest constituent carries just a 0.8% weighting.
Maybe it's to do with the type of shares found in the 250? At present, the mid-cap index covers companies with market values of between £150m to £1.9b. On the face of it, rapid business expansion is more likely to be found in this range than between £1.9b to £94b, the current size of blue chip leader HSBC (LSE: HSBA). Though small-cap shares range from £352m down to £80m, the businesses here are less established. So the 250 may well give greater ongoing contact with reliable performers that also have dynamic earnings potential.
Whatever the reasons, a quick visit to trustnet.com finds HSBC offering a relatively cheap FTSE 250 tracker OEIC. The annual cost is 0.75%, a bit more than mainstream trackers, and there's no initial charge. For those considering tracking the mid-caps though, don't forget HSBC's waiver: Past performance is not an indication of future performance.
Where next? Visit The Fool's Index Tracker Centre | How Trackers Work