The result of the EU referendum led to dramatic falls in both the FTSE 100 and the FTSE 250. However, while the FTSE 100 quickly recovered, the FTSE 250 is still markedly down. So which index should we be looking to for the most accurate gauge of the health of the British economy?
The FTSE 250, which includes the 250 next-largest stocks, is much more focused on the domestic economy. The top ten constituents include firms such as online estate agents Rightmove and the property developer Bellway, both of which will be deeply affected by economic developments here. There are still international firms in the index: the largest constituent, Smiths Group, gets only 4% of revenue from the UK. And the skew towards certain sectors remains.Energy is a much more realistic 3%, but financials account for nearly 35% of the index. However, the FTSE 250 is a better overall barometer for the UK economy.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The FTSE 250 tends to be more volatile than the FTSE 100: not only has it suffered more in the aftermath of the referendum, but it was also hit harder by the 2008 crash. But over the long term, it has done much better. Investing £100 into the FTSE 250 three decades ago would have left you with £2,415 today, compared with £1,225 for the FTSE 100. This amounts to an annual return of 11.2%, compared with 8.7% for the FTSE 100. This is consistent with an extensive body of research that shows that smaller firms tend to deliver higher returns than their larger counterparts.
Lastly, what of the FTSE All-Share index? This includes the constituents from the FTSE 100 and the FTSE 250, as well as smaller companies, so it should be the broadest measure of the market. However, the size of the FTSE 100 companies means that they account for 80% of the overall market cap, so the performance of the FTSE All-Share (and also of the FTSE 350, which includes FTSE 100 and FTSE 250 stocks) is very similar to that of the FTSE 100.
-
How to achieve a secure retirement, as more retirees admit to struggling with debtTwenty-six percent of retirees now have unsecured debt – a sharp rise compared to two years ago – with many underestimating how much a typical retirement costs
-
The key October self-assessment tax return deadlines to remember so you can avoid a shock billThere are two important dates for self-assessment taxpayers to remember in October
-
FCA tells banks to speed up savings rate increasesRecord profits and low savings rates spurred the FCA to meet with some of the UK’s top banks.
-
Britain’s inflation problemInflation in the UK appears to be remaining higher for longer when compared with similar rich countries. Why? And when can we expect a return to normal? Simon Wilson reports.
-
Why did SVB collapse and what does it mean for investors?News California-based Silicon Valley Bank collapsed seemingly overnight, casting doubts over the future of thousands of tech and science startups in the US and the UK.
-
Eurozone inflation hits 10.7% in OctoberNews Inflation across the eurozone hit 10.7% in October. What does it mean for your money?
-
A forgotten lesson on the dangers of energy price capsAnalysis Liz Truss’s proposed energy price cap is an ambitious gamble. But a similar programme in Spain ended up being a fiasco, say Max King and Tom Murley. Here, they explain why Truss’s plan could be doomed to failure.
-
Don't be scared by economic forecastingEditor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
-
The wolf returns to the eurozone’s doorEditor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
-
Eurozone economy heads for paralysisNews Record high energy prices, the threat of recession in Germany and squabbling in Italy's government has left the eurozone fighting fires on all fronts.
