Most active stock pickers fail to beat theFTSE 100. Trading mistakes, fees and a lack of diversification are factors that weigh on results.
However, there is a sure-fire way to beat the index, and it requires almost no effort whatsoever.
The FTSE 100 is the UKs leading index, but its not the index of the UK. Indeed, the FTSE 100 is an international index with many of the constituents based outside the UK. Its estimated that 70% of the FTSE 100s profits come from outside the UK.
So, when you buy the FTSE 100 as a whole, youre placing a bet on international growth.
Whats more, the FTSE 100 is amarket-capweighted index. This means that the indexs largest constituents HSBC,Royal Dutch ShellandBP makemore of difference to the indexs performance than smaller peers.
Unfortunately, a market cap weight index like the FTSE 100 can become extremely bias towards one sector during times of market excess.
In the late 90s, the FTSE 100 became a tech index, as the valuations of technology companies exploded, eclipsingthe performance of other sectors.
Then again, during 2007 the banking sector took over the index. Ultimately, when both of these bubbles popped, the FTSE 100 couldnt escape the turbulence.
A bigger index
The FTSE 250 is an index consisting of the101st to the 350th largest companies listed on the London Stock Exchange, and, as a barometer of UK economic performance, is more accurate than the FTSE 100.
You see, the FTSE 250 is a UK index. Almost all of the companies listed on the index are UK born and bred. Moreover, due to the size and diversification of the FTSE 250, theres less volatility for investors to deal with.
Over the past 16years,the FTSE 250 has risen by over 230%, excluding dividends. However, over the same period the FTSE 100 has only gained a dismal 10.5%.
This poor performance is down to the indexsover-relianceon bubble sectors during the period, and lack of diversification.
So, if youre looking for a way to beat the FTSE 100 year after year, the FTSE 250 is the way to go.
And one of the best ways to track the FTSE 250 is with theHSBC FTSE 250 Indexfund.
TheHSBC FTSE 250 Index fund, has returned an impressive 21.3% per annum since 2012. These are the kind of returns that even Warren Buffett would find hard to beat.
Over the past tenyears,the fund has returned 12.3%, just by tracking the FTSE 250 index. The funds ongoing charge is 0.2% per annum.
Even the lowest cost FTSE 100 tracker cannot beat these returns. For example, theiShares FTSE 100 UCITS ETF, which only charges a paltry 0.1% annum in management fees, has produced an annualized return of 7.1% over the past ten years.
All in all, if you want toconsistentlybeat the FTSE 100 year after year, all you need to do is buyan FTSE250 tracker fund.
But it’s not just the FTSE 250 that’s making the FTSE 100 look bad.After a quick look around, it is easy to see that there are plenty of other, more lucrative opportunities out there.
In particular, over the past ten yearsUnilever’sshares have produced a total return of11.7% per annum.
Now, you may be thinking that I’ve just cherry picked Unilever because the company’sreturns are better than average, but that’s not the case.
Unilever has actually been picked by the Motley Fool’s top analystsas one of thetop five sharesyou should hold in your investment portfolio, due to the company’s defensive nature and hefty dividend payout.
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