The FTSE 100 is the index of choice for UK investors that are looking to invest their savings.
Unfortunately, this is a big mistake.
You see, the FTSE 100 isnt really a UK index. It may be Londons most important index, but the FTSE 100 does not represent the UK.Its estimated that 70% of the FTSE 100s profits come from outside the UK.
Nor does the index give a fair view of the market. Indeed, the FTSE 100 is more of an internationalresource and finance index than anything else.
Mining and banking
For example,the oil & gas sector accounts for 14.5% of the FTSE 100, with Shell and BP making up around 10%. Mining account for 7% of the index, whilebanks make up 13.3%.
Clearly, the FTSE 100 is not the best index for investors to follow. If you want to benefit from UK economic growth, the FTSE 250 is the best index to track.Almost all of the indexs constituents are UK born and bred.
Over the past 16years,the FTSE 250 has risen by over 230%, excluding dividends. Over the same period, the FTSE 100 has only gained a dismal 10.5%.
However, if youre really looking to boost your returns, and benefit from global growth, the S&P 500 and theSTOXX Europe 600 are the two indexesyou need to track.
The S&P 500 is the USs leading stock index. Grouping together 500 of the largest companies in the US, and the world, the indexs total market capitalisation exceeds $15trn. There are around 40 companies in the index with a market value of over $100bn.
And the S&P 500 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 1,829%, excluding dividends. Over the same period, the FTSE 100 has only returned 542%. Londons leading index has underperformed by 1,287%.
Play on Europe
TheSTOXX Europe 600 is a European index that represents 600, large, medium and small-cap companies across18 countries of the European region.
Over the past five years, the index has returned 70% excluding dividends and outperforming the FTSE 100 by 35%.
International indexes like the S&P 500 and STOXX 600 are better plays on the global market than the FTSE 100. But, by buying into overseas assets, investors expose themselves to foreign currency risk.
However, many fund managers now provide tracker funds that are hedged, toreduce the effect of fluctuations in the exchange rates.
TheiShares 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.
Also, investors can look to theLyxor UCITS ETF EURO Stoxx 50 Monthly Hedged C-GBPfund for hedged exposure to Europe. The Lyxor fund charges 0.2% per annum.
These indexes may offer exposure to international grow but their dividends leave much to be desired. At present, the S&P 500 only offers a token dividend yield of 1.9%.
So, if you rely on your investments for additional income, then 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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