FTSE 100 v FTSE 250

Brits might want to have a look at a new ETF from Vanguard - VMID, which represents the FTSE 250, not just the FTSE 100. I plan to purchase this as part of my UK 'quota' alongside VUKE, probably alternating purchases.  Rationale for this below, taken from Andrew's blog.

"The FTSE 100 does not represent the UK market - only 20% is exposed to what happens in the UK, with 80% of it affected by what happens abroad. This is evident in the fact that the index barely moved when the UK economy returned to growth this year or never moved around the days of the Scottish referendum - the potential break up of the UK and the index barely moved, yet the pound plummeted! What shook the market this year - Ukraine, Malaysian Airlines, ISIS and Ebola - all away from the UK.

There is one benefit of tracking the FTSE 100 and that is the yield, which is among the highest for any major index in the world - usually above 3% and currently yielding 3.6% pa.

Keep what money you have in the FTSE 100 and just start buying the midcap FTSE 250, which is more representative of the UK economy. Why?

1) It is more diversified

2) The top 10 companies only make up 11% of the index in terms of weighting.

3) The yield is historically just below 3% - currently now 2.8%.

4) Approximately 80% of the index has UK exposure, 20% abroad -  almost the opposite to the FTSE 100.

5) We shouldn't go on past performance, but I will, since its creation in the mid 1980's, the FTSE 100 has only beaten the 250 for a total of 4 years! The rest of the time, the 250 has produced higher returns - including this year.

Author: John D

The FTSE 100 is a terrible index to track for a number of reasons.

1) It is not very diversified - the top 10 companies (mainly oil and banks) by weight make up 46% of the index.

2)The index is heavily concentrated in oil (just watch the news!), miners (facing a slow down in China etc), supermarkets (involved in a price war at the moment - a few months ago Tesco's shares plummeted, where Warren Buffet lost millions) and banks (nationalised and facing periods of debt restructuring etc).