Sunday, April 18

FTSE 100, 250 and All-Share – what’s the difference?


It’s no secret that the UK stock market has been pretty unloved over the last few years. UK investors have had a tough time, from long lasting Brexit negotiations, to market falls and dividend cancellations in 2020. But things are starting to look rosier with our home markets showing some signs of recovery.

With investors possibly starting to think about investing back into the UK, we’ve decided to go back to basics and take a closer look at the main UK stock market indices.

This article isn’t personal advice. If you’re not sure if an investment is right for you, ask for financial advice.

The FTSE Indices

As the home to the UK’s largest companies, the FTSE 100 attracts headlines in the UK. But with hundreds of smaller and medium-sized companies offering unique products and services to consumers both here and abroad, there’s so much more to our home market.

FTSE 100

The FTSE 100 is probably most well-known to UK investors. It measures the performance of the 100 largest companies traded on the London Stock Exchange (LSE). It’s the most widely used UK stock market indicator, featuring some big names like BP, AstraZeneca, HSBC and GlaxoSmithKline.

Lots of these companies don’t only carry out business, or sell their products and services, in the UK. They’re recognised on the global stage too. This means they’re impacted by currency movements, global policies and trends, particularly in the US and Europe, a major trading partner – not just what goes on in our domestic market.

The FTSE 100 tends to be more stable than the other FTSE indices and offers a good opportunity to diversify globally. But with lots affecting how the companies in the index perform, it can also mean investors have lots to think about.

Key points for investors:

Made up of the UK’s 100 largest companies

Offers global diversification

Affected by currency fluctuations from companies earning money abroad

High concentration in areas like energy and banks

Dividend yield of 3.7% per year – yields are variable though, so aren’t a reliable indicator of future income

Performance

With dividends reinvested, the FTSE 100 has grown 109.94%* in the last 20 years. This would have turned an initial investment of £10,000 into £20,994.

Jan 16 –

Jan 17 Jan 17 –

Jan 18 Jan 18 –

Jan 19 Jan 19 –

Jan 20 Jan 20 –

Jan 21 FTSE 100 (total return) 21.4% 10.4% -3.5% 9.4% 9.2%

Remember past performance isn’t a guide to future returns. Source: *Lipper IM to 31/01/2021.

FTSE 250

The FTSE 250 is made up of the next biggest 250 companies after the FTSE 100, also known as medium-sized companies. These are thought to have more potential to grow than companies in the FTSE 100 because they’re usually seen to be more innovative or nimble. But this can come with greater risks as they can be more volatile.

Companies in the FTSE 250 are usually more domestically focused than the FTSE 100, meaning they carry out more of their business in the UK than abroad. For that reason, this index is considered a better indication of the health of the UK economy versus the FTSE 100.

It includes household names like easyJet, Greggs, J D Wetherspoon and ITV. That said, there are also companies that earn their money overseas too.

The FTSE 250 is more of an indication on how the UK is doing as a whole.

Key points for investors:

More UK focused

Made up of companies with higher potential to grow

Can be riskier as it’s more volatile

Current dividend yield of 2.3% per year – yields are variable though, so aren’t a reliable indicator of future income

Performance

With dividends reinvested, the FTSE 250 has grown 420.70%* in the last 20 years. This would have turned an initial investment of £10,000 into £52,070. While these numbers might look impressive, this market is particularly volatile and investors can experience more significant setbacks when these stocks are out of favour.

Jan 16 –

Jan 17 Jan 17 –

Jan 18 Jan 18 –

Jan 19 Jan 19 –

Jan 20 Jan 20 –

Jan 21 FTSE 250 (total return) 13.2% 14.6% -5.0% 16.4% 2.5%

Remember past performance isn’t a guide to future returns. Source: *Lipper IM to 31/01/2021.

FTSE All-Share

The FTSE All-Share is made up of the FTSE 100, FTSE 250 and FTSE Small Cap. As the name suggests, the FTSE All-Share index includes much smaller companies, which are the 351st to 619th largest companies on the LSE. The broad range of companies means the FTSE All-Share captures around 98% of the UK’s market (roughly 620 shares).

While diversified, it’s still heavily weighted to larger companies, like those featured in the FTSE 100. Bigger companies make up a bigger proportion of the index, so have more of an impact on the overall performance of the index.

Key points for investors:

Offers diversification by company size, with around 620 shares

Tracks nearly the entire UK market

Heavily invested in larger stocks, meaning performance is similar to the FTSE 100

Current dividend yield of 3.4% per year – yields are variable though, so aren’t a reliable indicator of future income

Performance

With dividends reinvested, the FTSE All-Share has grown 140.37%* in the last 20 years. This would have turned an initial investment of £10,000 into £24,037.

Jan 16 –

Jan 17 Jan 17 –

Jan 18 Jan 18 –

Jan 19 Jan 19 –

Jan 20 Jan 20 –

Jan 21 FTSE All Share (total return) 20.0% 11.3% -3.8% 10.7% 7.6%

Remember past performance isn’t a guide to future returns. Source: *Lipper IM to 31/01/2021.

What does this mean for investors?

Investments that try to follow indices like the FTSE 100, 250 and All-Share can be easy and low-cost ways to invest. But when building and reviewing your overall portfolio it’s important to know the similarities and differences between any indices, and what they actually give you.

In the UK’s case, the FTSE 100 invests in the UK’s largest 100 companies while giving a bit of a global twist. It has usually had the best yield of the three, though not guaranteed and it isn’t an indication of the income you’ll receive in future.

The FTSE 250 is more UK focussed. These companies could potentially grow quicker but could be a bit riskier.

The FTSE All-Share gives all these companies and more.

They all seem pretty different, right?

Well the FTSE 250 certainly offers something different from the FTSE 100 and All-Share. But while the FTSE 100 and All-Share offer good opportunities for investors to diversify across a broad range of shares, they offer something similar. Both indices are mainly made up of the same gigantic companies, so performance between the two hasn’t been that different.

The point here is to always look a bit deeper. Just because they’re different indices doesn’t mean they always offer very different things.

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