FTSE 100 vs FTSE 250

[BT63]

FTSE 100 vs FTSE 250.

From the early 1980s to the early 2000s, the two indices gave similar returns.

From the early 2000s to the present, the FTSE 250 significantly outperformed the FTSE 100.

It's also worth noting that since the early 2000s, the FTSE 250 hasn't looked too sluggish compared to the mighty US markets, either.

What changed in the early 2000s?
In particular, why do you think the FTSE 100 fell behind UK midcaps and the US?

[tjh290633]

FTSE 100 vs FTSE 250.

From the early 1980s to the early 2000s, the two indices gave similar returns.

From the early 2000s to the present, the FTSE 250 significantly outperformed the FTSE 100.

It's also worth noting that since the early 2000s, the FTSE 250 hasn't looked too sluggish compared to the mighty US markets, either.

What changed in the early 2000s?
In particular, why do you think the FTSE 100 fell behind UK midcaps and the US?

The dot-coms fell out of the FTSE100, and into the FTSE250 or vanished. The rest is probably a sector thing. A comparison of the constituents over the last 30 years might be instructive.

TJH

[gryffron]

No new tech. The only tech companies in the FTSE are BAE, Rolls and Sage. They've all been there forever.

Where are the Googles, Amazons, Twitters, Ciscos, Teslas.

It's not that we don't innovate new tech in the UK, it's just that it sells out to foreign competitors way too soon. It seems our entrepreneurs are happy to make a few million and quit. They're not interested in following it through to making billions. I think it's a wider cultural problem. Too many people here who think great wealth is evil.

Gryff

[hiriskpaul]

The question is what went wrong with the FTSE 100 rather than what went right with the FTSE 250, which did just fine compared to world markets. The answer is I think largely to do with being very overweight financials and commodities, underweight technology.

[EthicsGradient]

No new tech. The only tech companies in the FTSE are BAE, Rolls and Sage. They've all been there forever.

Where are the Googles, Amazons, Twitters, Ciscos, Teslas.

It's not that we don't innovate new tech in the UK, it's just that it sells out to foreign competitors way too soon. It seems our entrepreneurs are happy to make a few million and quit. They're not interested in following it through to making billions. I think it's a wider cultural problem. Too many people here who think great wealth is evil.

Gryff

Or they don't think think that more personal wealth than you can spend is worth struggling for. People don't retire because they think working is "evil"; they do it because they have enough. Why does it affect you if the billions are made by Americans or by British people? (And if we're talking "evil", then the wages and working conditions of Amazon, compared with Bezos' personal billions, are far more relevant).

[SteadyAim]

Partly because they cycled in and out of fashion at different times.

I believe the 250 has always outperformed the 100 in underlying (earnings or divi) growth, but in ~2003 iirc, for whatever reason (market fashion), the 250 was valued lower than the 100, depressing it's market performance to that point. Since then it has gained from the combination of very good underlying performance and also a market re-rating so that instead of having a divi yield (say) 1% above the 100 index as in 2003, it now has a divi yield 1% below the 100 index.

I think they both started at 1000 in 84, so using 19836 I get ~8.2%/year for the 250 and ~5.4%/year for the 100 (not including divis, obv). Back in 2002/2003 I think the difference was only ~1% or so, although perhaps that would have been ~2% if adjusted for the low valuation at the time (I don't remember the detail). I don't think I ever found any data on the relative valuations of the 2 indexes when they started, obviously that could have a noticeable impact - if one was valued much cheaper than the other on inception date, then it would have an advantage going forward.

So overall, I think the companies in the 250 generally grow faster than the 100, say by 2%/year, perhaps they have had a particularly good time in the last 20 years for some reason, and they have also benefited from a re-rating over this period so they are now (correctly imo) valued higher as a group than the ftse 100.

I might have some of these numbers wrong, but I believe the general gist is about right.

[mc2fool]

I think they both started at 1000 in 84...

No, the FTSE 250 started at 1412.60 on 31-Dec-1985*. See the notes under Table H on PDF page 26 (numbered as page 410) of:

https://web.archive.org/web/20100211143046/http://ftse.com/Research_and_Publications/Archive/FTSE_UK_Index_Series_1997.pdf

A useful page to bookmark.

(* which happened to also be the closing level of the FTSE 100 on that day )

[SteadyAim]

Ah, nice info, thanks!

So capital performance:
FTSE 100: 1000 on 1983-12-31 to 7465 today, ~5.4% / year
FTSE 250: 1412 on 1985-12-31 to 20101 today (x14.24), ~7.5% / year

So my earlier guesstimate for the 250 was overstated.

This is still ignoring divis and any change in valuation over the period. I guess it's just possible that these contribute 1%/year each, leaving the real underlying performance of the 2 indexes the same, but it seems unlikely, so I think it's reasonable to assume that the 250 outperforms in general, in the longer term, although obviously individual weeks and months will differ.

It's interesting to consider what difference in valuation is about right. I think the 250 has traded at about 1% lower divi yield in the last 10-15 years, which seems reasonable. If it grows 2% faster than the 100 though, should the difference in yield be 2%?

[EthicsGradient]

It seems worth pointing out that, over the 5 years from April 2017 to April 2022, the FTSE 100 total return has outperformed the FTSE 250 total return:

http://www.ftse.com/Analytics/FactSheet ... nual=False

FTSE 100 27.3%, FTSE 250 19.4% (and FSE Small Cap 43.2%)

This may be due to the oil and gas bias of the 100, however; the concatenated returns from Jan 2017 to Jan 2022 give 25.6% for the FTSE 100, and 46.9% for the 250. It looks like the FTSE 100 has been supported by the fossil fuel profits. The 250 is fully taking part in the global drop.

[mc2fool]

This is still ignoring divis...

The afore linked-to doc does also give the starting dates and values for the TR indices, which is 1000 on 31-Dec-1992 for most, including the FTSE 100 & 250 TRs.