It has been a relatively good year for investors around the world, especiallyEuropean investors. Year to date, FrancesCAC 40is up around 14.2%, GermanysDAXhas risen 12.8%, the Europe-wideSTOXX 600has gained 11.3% and theSTOXX 50, an index of Europes 50 largest companies, is up 9.8% year-to-date. Over in the US, the indexes have put in a less impressive but still positive performance. Year to date, theS&P 500is up 1.5% and theDow Jones Industrial Averageis flat for the year.
Unfortunately, theFTSE 100 has lagged all of its major international peers this year. Excludingdividends, the index is down 3.5% year-to-date, and this isnt just a one-off. For the past five years, the index has lagged the rest of the world by a significant margin while the S&P 500 has led the pack.
Since the end of 2010 the S&P 500 has risen 74.1%; in comparison the FTSE 100 has only gained 10.5% over the same period, which is around 2.1% per annum less than the return achieved on 10-year UK governmentbonds over the same period.
The FTSE 100s poor returns can be blamed on the poor performance of the resource sector. The index has more exposure to this volatile and highly cyclical sector than any other index in the world, and this clearly shows through in the return figures for the past five years.
Ifyoure really looking to boost your returns and benefit from global growth, Id argue that the S&P 500 and the STOXX Europe 600 are the two indexes you need to track.
The S&P 500 is the USs leading stock index, which groups together the 500 largest companies list in the US. In manyways, the S&P 500 is an index of the worlds largest and most recognisable companies, includingApple, Alphabet,Amazon.com, ExxonMobil, MicrosoftandDisney.
And the S&P 500s performance has eclipsed that of the FTSE 100 over the past 35 years.
A simple analysis shows that since 1 January1980, the S&P 500 has returned 1,861%, excluding dividends. Over the same period, the FTSE 100 has only returned 478%. Londons leading index has underperformed by 1,383%. TheSTOXX Europe 600, whichrepresents 600, large, medium and small-cap companies across18 countries of the European region, has outperformed the FTSE 100 by 30%over the past five years.
Based on historic trends, its clear that UK investors would have been better off investing overseas than investing at home for much of the past decade. But many investors are concerned about the risks of investing in foreign markets. A lack of information and foreign exchange risks are the two most commonly cited reasons for avoiding international markets.
However,many financial products have hit the market during the past few years that have mitigated these risks. For example, a tracker fund removes the need to keep an eye on individual stocks 24/7, and many trackers are now offered in multiple currencies.
Three great international trackers are the iShares S&P 500 GBP Hedged UCITS ETFonly charges 0.45% per annum and tracks the S&P 500 without exposing you to currency risks. For Europe, theres theUBS MSCI EMU hedged GBP UCITS ETF, which tracks the439constituents of theMSCI Europe. The ETF pays agross dividend yield of 3.2% and charges 0.33% per annum in fees. And finally theres theLyxor UCITS ETF EURO Stoxx 50 Monthly Hedged C-GBPfund for hedged exposure to Europe. The Lyxor fund charges 0.2% per annum.
Sadly, these trackers don’t offer much in the way of income so it could be sensible to buy a selection of dividend champions to sit in your portfolio alongside a low-cost tracker.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares in Alphabet and Apple. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.