2 Oct 2015

According a chap on Bloomberg TV, $11 trillion was lost from the value of global equities in Q3. The FTSE 100 fell by 10.2% and the FTSE 250, as usual doing better, fell by 5.8%. In the three years since I set up this website, the FTSE 100 is up by just 5.6% and the FTSE 250 by 42.2% which is a shocking disparity. The FTSE 100 is the top 100 companies by market capitalisation and contains many international banking, pharma, oil, mining and commodity businesses. The FTSE 250 is companies ranked from 101 to 350 and contains more domestic household names. I suspect that these companies are of a more easily manageable size and have more scope for growth. That may be a story worth looking at more closely but there is an interesting question to ask at once: if you own a tracker fund (as I do in a small way) what is it tracking? Most UK tracker funds follow the FTSE 100 or the FTSE All Share. Over the last five years, the FTSE 100 is cumulatively +8.4% and the All Share is +15.2%. These returns exclude dividend payments. The tracker fund should retain the dividends (after it has taken its fee) to boost the fund performance, so tracker funds should really beat the index (shouldn’t they?). These performance statistics indicate that the question of what your fund is tracking is rather important. And guess what? Over the last five years the FTSE 250 is up by 57.5%, an amazing outperformance of the other two indices. Over the last ten years it looks like this: FTSE 100 + 11%, FTSE 250 + 110%, FTSE All Share +21%. These are remarkable numbers. You might wonder why there are so few 250 trackers on offer. It might be because it’s much easier and cheaper to track an index that consists of 100 large shares rather than 250 medium-sized ones.  Or you might prefer your own conspiracy theory. Government bond markets did not share the sense of near-panic that infected equities. German 10 year Bund yields fell from 0.84% to 0.61%. UK 10 year gilt yields from c.2.1% to 1.8%. Nothing much to smell...