FTSE 100 vs FTSE 250 vs FTSE All-Share: pros and cons of investing

We look at the pros and cons for investors of the three main stock market indices

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FTSE 100 vs FTSE 250 vs FTSE All-Share: pros and cons of investing

Though the FTSE 100 index tends to attract the most coverage in the financial news, there are other market indices here in the UK.

For example, the mid-cap FTSE 250 index hit an all-time closing high of 17,273.82 on 27th February.

Last Monday, it hit a fresh intra-day high of 17,335.01, before falling back to close lower. What's more, since the turn of the century, returns from the FTSE 250 have thrashed those of the FTSE 100 and the wider FTSE All-Share.

With share prices hitting new highs across the board, let's review the UK's three main indices, their performance and the pros and cons of investing in each index.

Which FTSE 100 heavyweight is set to climb?

FTSE 100: the blue chips

The FTSE 100 index is the UK's best-known and most-watched market index. With a market value approaching £1.9 trillion, it is also the UK's biggest index by far.

The FTSE 100 tracks the value of the 100 biggest London-listed companies, including such household names as Royal Dutch Shell, HSBC, BP and Vodafone.

Pros and cons

As the largest and most liquid UK index, the FTSE 100 tends to be less volatile than smaller indices - and usually cheaper to track, too. However, blue chips have underperformed mid-cap and small companies for many years, partly because the Footsie has such a heavy weighting in oil and gas, mining and resource stocks. Also, being packed with multinationals making most of their earnings in US dollars means a strong dollar reduces the FTSE 100's sterling earnings.

Which FTSE 100 heavyweight is set to climb?

Performance

Last month the FTSE 100 finally passed its previous peak of 6,930.2 on 30th December 1999 to set a new high of 6,949.63 at close. And just this week it hit a new intra-day high of 6,974.26.

Here are the returns from the FTSE for various periods since 1999 (including dividends and to end-February 2015):
PeriodTotal
return
Annualised
return
One year5.6%5.6%
Three years31.8%9.6%
Five years54.7%9.1%
10 years101.0%7.2%
Since end-199967.8%3.5%


Cheapest trackers

Buying a FTSE 100 index-tracking fund is one of the cheapest ways to buy a big slice of the London market. Here are three of the lowest-charging FTSE 100 trackers:
FundOngoing
charge
figure
Legal & General UK 100 Index Trust0.10% a year*
BlackRock 100 UK Equity Tracker0.16% a year
HSBC FTSE 100 Index0.17% a year

*Reduced to 0.06% a year through Hargreaves Lansdown

FTSE 250: the mid-caps

The FTSE 250 index, known as the mid-cap index, tracks the market value of the 250 biggest companies below the FTSE 100. In other words, its members are ranked from 101 to 350 by market cap in London. Together, these firms are worth roughly £390 billion and individually range in value from nearly £5 billion to under £500 million.

Pros and cons

Being roughly a fifth of the size of the FTSE 100, the FTSE 250 is smaller and less liquid. This means that it is much more volatile at times.

In addition, the FTSE 250 is regarded as a more UK-focused index, as it includes fewer multinationals and more home-grown businesses than the FTSE 100. For example, it contains familiar names such as bookmaker William Hill, retailer Halfords and property website Rightmove.

Performance

Not only did the FTSE 250 hit an all-time high just a few days ago, its returns have thrashed those of the FTSE 100 over the short and long term, as this table shows:
PeriodTotal
return
Annualised
return
One year6.1%6.1%
Three years63.7%17.9%
Five years111.7%16.2%
10 years213.5%12.1%
Since end-1999307.5%9.7%

The FTSE 250 has easily beaten the blue-chip index over all five of these timescales, producing double-digit returns over three, five and 10 years. Some investors attribute this outperformance to the mid-caps being nimbler and having more room to grow.

Cheapest trackers

Here are two of the lowest-charging FTSE 250 trackers:
FundOngoing
charge
figure
HSBC FTSE 250 Index (Class S)0.07% a year
HSBC FTSE 250 Index0.27% a year*

*Reduced to 0.17% a year through Hargreaves Lansdown

Invest in a tracker through a Stocks & Shares ISA

The FTSE All-Share

The FTSE All-Share index tracks the market value of the FTSE 100 and FTSE 250 combined, plus almost 300 smaller businesses. It is the widest market index, capturing about 98% of the London Stock Exchange. Together, its 642 members have a total market value of around £2.3 trillion.

Pros and cons

Despite being a combination of the FTSE 100, FTSE 250 and smaller firms, the FTSE All-Share tends to track the FTSE 100 fairly closely, due to blue chips dominating this index. Nevertheless, being a wider measure means the FTSE All-Share has frequently beaten the FTSE 100 since the turn of the century.

Performance

The FTSE All-Share's performance has been broadly in line with that of the FTSE 100, though it has beaten the big-caps over three, five and 10 years and since the end-1999, see:
PeriodTotal
return
Annualised
return
One year5.6%5.6%
Three years36.4%10.9%
Five years62.1%10.1%
10 years112.6%7.8%
Since end-199990.1%4.3%

Cheapest trackers

Here are three of the lowest-charging FTSE All-Share trackers:
FundOngoing
charge
figure
Vanguard FTSE UK All Share Index0.08% a year**
Fidelity Index UK0.09% a year*
Legal & General UK Index0.10% a year***

*Plus a 0.2% initial charge

**Reduced to 0.07% a year through Fidelity FundsNetwork

***Reduced to 0.06% a year through Hargreaves Lansdown

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