The FTSE 100 index started out on 3 January 1984, just over 40 years ago. Until the mid-1990s, it pretty much matched its American counterpart, the S&P 500. However, for most of the past three decades, the US index has reigned supreme.
The Footsie is flagging
For example, here’s how the two have performed over these three timescales:
| Index | FTSE 100 | S&P 500 | Difference |
| Six months | 2.6% | 6.2% | 3.6% |
| One year | -3.0% | 19.9% | 22.9% |
| Five years | 9.4% | 79.1% | 69.7% |
My table shows that the US index has easily beaten the Footsie over extended periods. Indeed, it’s obvious that — in recent history, at least — investors would have been better off betting on America than the UK.
However, this isn’t the full picture, because the above figures excluded dividends — regular cash distributions paid by some companies to shareholders. Currently, the Footsie offers a dividend yield of 4% a year, nearly triple the S&P 500’s 1.5% yearly cash yield.
Thus, adding dividends to the above returns would boost the FTSE 100’s returns considerably. Yet even after taking these into account, the US index has established a commanding lead over the Footsie.
This share is a star
Of course, with 100 different companies in the Footsie, individual stock returns can vary enormously over time. For example, take Pershing Square Holdings (LSE: PSH), a company that floated in London in May 2017.
My wife and I bought this stock for our family portfolio in August 2022, paying 2,989p per share. On Friday, 12 January, it closed at 3,588p, up more than a fifth (+20.1%) from our buy price. That’s a handsome return, considering the FTSE 100 has gained just 1.6% over the same period.
What’s more, PSH is up 23.3% over six months and 18.6% over one year. Over five years, it has demolished the wider index — soaring by 219.2%, versus 9.4% for the Footsie. What’s more, it has thrashed the S&P 500’s rise of 79.1% over half a decade.
This is actually a hedge fund
What’s the story behind its repeated market-beating returns? Pershing is actually an investment trust — an investment fund with publicly traded shares.
The underlying fund is Pershing Square Capital Management, a well-known US hedge fund managed by outspoken American stock-picker William Ackman. Nicknamed ‘Wild Bill’, Ackman is known for making big and bold bets. And these have mostly paid off, as he has built a personal fortune of $4.1bn (£3.2bn).
For instance, during the early stages of the Covid-19 crisis in spring 2020, Ackman turned a $27m investment into a profit of $2.6bn in a month by betting on the short-term collapse of credit markets. What a remarkable trade.
Normally, investing in hedge funds is only for the super-rich, with minimum investment levels typically being upwards of £500k or £1m. Yet I have Ackman working to make me richer for under £30 per share.
Of course, investing in hedge funds can be risky. Some have blown up spectacularly, while thousands more have shut down this century. Also, past performance is no guide to future returns. And what if Ackman steps down?
Even so, I’m hopeful that this stock will beat the FTSE 100 (and S&P 500) over the next five to 10 years!
