Everyone’s heard of the FTSE 100 index (or ‘Footsie’ in popular parlance). When the general news media features the UK ‘stock market’, it’s invariably with reference to the FTSE 100. As such, many people who decide to invest in the stock market choose a Footsie tracker.
In this article, I’m going to discuss another UK index for which trackers are readily available — the FTSE All-Share index — and tell you three reasons why I think this index is a better choice for investors than the FTSE 100.
Reason #1 As its name suggests, the FTSE 100 is an index of 100 companies. They’re the biggest companies listed on the main market of the London Stock Exchange. The FTSE All-Share index includes all the FTSE 100 companies and over 500 more.
With an All-Share tracker your money is invested in a far wider range of businesses, including in sectors that aren’t represented, or are poorly represented, in the FTSE 100. For example, to name just three, there are no pub groups, cinema chains or self-storage operators in the Footsie. Meanwhile, an All-Share investor has a little money in these sectors, via the likes of Wetherspoons, Cineworld and Big Yellow.
The greater number of companies and the greater range of sectors is the first reason why I’d buy an All-Share tracker instead of a FTSE 100 tracker.
Reason #2 Both indexes are weighted by market capitalisation (market cap for short). The market cap of a company is simply its share price multiplied by the number of shares it has in issue. Oil giant Shell (LON:RDSa) is the biggest company in the FTSE 100 with a market cap of getting on for £200bn. Its index weighting is over 50 times that of current number 100 Marks & Spencer, whose market cap is around £3.5bn.
The FTSE 100 companies represent about 85% of an All-Share tracker, but having another 15% in companies outside the Footsie usefully dampens the dominance of the ‘megacaps’ like Shell. The table below shows the weightings of the top five companies in HSBC’s FTSE 100 and FTSE All-Share trackers (as of 30/4/19).
| HSBC FTSE 100 Index (%) | HSBC FTSE All-Share Index (%) | |
| Royal Dutch Shell | 11.0 | 8.7 |
| HSBC | 7.0 | 5.5 |
| BP (LON:BP) | 5.8 | 4.5 |
| AstraZeneca | 4.5 | 3.8 |
| Diageo (LON:DGE) | 4.2 | 3.4 |
Reason #3 Last but not least of my three reasons is performance. The table below shows the total return (including reinvested dividends) of HSBC’s FTSE 100 and FTSE All-Share trackers over one, three and five years.
| 1 year (%) | 3 years (%) | 5 years (%) | |
| HSBC FTSE 100 Index | -1.6 | 18.3 | 28.2 |
| HSBC FTSE All-Share Index | -2.0 | 18.4 | 30.6 |
Foolish bottom line A FTSE 100 tracker can do a very decent job for investors. However, for reasons of diversification, company weightings and long-term performance, I think a FTSE All-Share tracker could be a superior option.
G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019