The FTSE 100 index has lagged behind the S&P 500 for a very long time, but this year the “Footsie” has performed better than its US peer. Though “performed” might not be the best description, given that the UK index is still down 7% in 2022. The S&P 500, though, has suffered a much more dramatic 24% drop since the turn of the year.
But all that is in the past. I’m wondering which index might be better for my portfolio moving forward.
The FTSE 100
The FTSE 100 is a share index of the 100 largest companies by market capitalisation listed in the UK. An unusual factor about the index is that it isn’t really representative of the UK economy, as many of the companies are internationally focused.
BP, for example, has a presence in 70 countries around the globe. AstraZeneca sells its medicines to millions of patients in over 100 nations. And drinks giant Diageo operates in 180 countries, which is as close to worldwide as you’re going to get.
Yet the UK blue-chip index is sometimes mocked because the majority of its constituents are deemed old-world-economy companies. James Anderson, the recently-retired manager of the Scottish Mortgage Investment Trust, went so far as to say: “The FTSE 100 is really a 19th century and not even a 20th century index”.
Personally, I do think the FTSE 100’s dinosaur reputation is a bit unfair. There are some wonderful, world-leading companies within the index. Two that stand out to me are Diageo and data specialist Experian. They’re as good at what they do as any company listed across the pond.
FTSE 100 Top 10 (as of October 2022)
| Company | % of index |
| Shell | 9.2% |
| AstraZeneca | 8.2% |
| Unilever Group | 5.6% |
| HSBC Holdings | 5.0% |
| Diageo | 4.6% |
| BP | 4.6% |
| British American Tobacco | 4.1% |
| Glencore | 3.5% |
| Rio Tinto Group | 3.0% |
| GSK | 3.0% |
| TOTAL | 50.8% |
The UK remains the land of the dividend
We cannot ignore the fact that the FTSE 100 has now gone sideways for 22 years. A £5,000 investment in the index at the turn of the millennium would still be worth £5,000 today. Yet that doesn’t tell the whole story.
If I’d invested in the index and opted to reinvest the dividends it regularly pays out, my investment would have compounded to be worth around £10,000 today. So, even when the price of the index barely moves, I can still earn a decent return if I reinvest the dividends.
With the FTSE 100 yielding 4.1% today, that sounds appealing to me.
The S&P 500
The S&P 500 is a who’s who of the greatest companies on Earth. Apple is currently the largest constituent, at 7% of the whole index. The S&P 500 has consistently outperformed the FTSE 100 over the last two decades, returning 158% in capital growth alone since 2000.
S&P 500 Top 10 (as of October 2022)
| Company | % of index |
| Apple | 7.0% |
| Microsoft | 5.6% |
| Amazon | 3.2% |
| Alphabet Class A | 1.9% |
| Tesla | 1.9% |
| Alphabet Class C | 1.7% |
| Berkshire Hathaway | 1.6% |
| UnitedHealth Group | 1.5% |
| Johnson & Johnson | 1.4% |
| Exxon Mobil | 1.4% |
| TOTAL | 27.2% |
Risks with both
One risk I see investing in the FTSE 100 is the potential for a sudden market rotation towards growth companies, which the UK index certainly lacks. If that were to happen, then it would soon lag behind the S&P 500 once again.
However, if the global economy worsens, we could see a ‘flight to safety’ scenario where investors flock to the more pedestrian-but-predictable companies in the FTSE 100.
I think both indexes are attractive for different reasons. The FTSE 100 pays an attractive level of passive income, while the S&P 500 contains most of the world’s greatest growth companies.
I’m leaning towards the FTSE 100 right now, though. The 4.1% dividend yield is double what the S&P 500 pays, which looks enticing to me. And I think there’s still life (growth) left in the old FTSE 100 yet.
