As starter portfolios go, I think UK investors could do worse than consider buying a fund that tracks the return of the FTSE All-Share index. In addition to getting exposure to our biggest companies, a fund like this also gives access to smaller firms that have the potential to grow at a faster clip.
Let’s take a closer look at how this index has performed so far this year.
A solid year
As I type (12 December), the All-Share is up 7.7%. This is almost identical to the FTSE 100 and very slightly more than the FTSE 250. Put another way, a £20,000 investment — the maximum annual contribution one could make into a Stocks and Shares ISA — would now be worth £21,540.
Actually, the result would be even better than that because I haven’t taken into account the impact of dividends. Right now, the yield sits around 3.6%.
For simplicity’s sake, let’s assume that it was the same value in January. This would amount to an extra £720 on that original £20,000 investment.
Of course, there’s always a temptation to spend that money. But reinvesting it would increase the amount that compounds over time. Over many years, that could make an enormous difference to our investor’s wealth.
But here, we hit a snag.
Better buy
As respectable as a 7.7% gain is, it pales in comparison to what the main index in the US market — the S&P 500 — has managed to achieve over the same period.
An investor putting that £20,000 to work ‘across the pond’ will have seen their money grow by an astonishing 28% in 2024 so far. Instead of having £21,540, they’d have somewhere in the region £25,600. Yikes!
Given this, how can it make sense to keep holding an All-Share tracker?
What goes up…
Well, an awful lot of the S&P 500’s outperformance is down to small band of tech titans like Nvidia, Apple and Tesla.
Elon Musk’s electric car company, in particular, has done brilliantly. Its shares have climbed over 70% year-to-date. This is despite the firm missing analyst expectations on revenue earlier in the year and seeing margins squeezed as competition with Chinese rivals stepped up a gear.
To be frank, a lot of uplift seems to be down to the CEO’s burgeoning friendship with Donald Trump. Investors clearly believe that the latter will do everything he can to protect and boost business for the EV-maker. Think tax cuts and de-regulation for self-driving vehicles.
The question, however, is whether this performance will continue into 2025. Personally, I’m not sure it can. Tesla’s valuation can only go so high before even the most bullish investors can’t stomach buying. And that’s before we’ve even considered how geopolitical events may impact sentiment.
Buy British?
In such a scenario, we might see more investors wanting to spread risk and get exposure to parts of the world that look cheap in comparison. That surely includes our very own UK stock market!
With this in mind, considering an All-Share tracker makes sense to me.
Sure, the value of this fund can always fall in tandem with the S&P 500. But diversifying away from the US might offer investors a slightly stronger safety net in the event of 2025 being a horrible year for markets (and Tesla shares).
