How does the FTSE Global All Cap Index perform against the S&P 500? Should you invest in a global fund with this benchmark index or are you better off with the top 500 companies in the United States? Whilst one index has certainly outperformed the other, we need to breakdown why this is. After all, historical returns are no guarantee of future performance.
An awareness of how these funds might perform differently in the future can help us decide between the FTSE Global All Cap or S&P 500. This FTSE Global All Cap Index Fund (accumulation) review will highlight the risks and benefits of a global all-cap fund. There are also a number of S&P 500 warning signs that need to be called-out! All of which can drive our investment strategy.
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Disclaimer: This article should not be considered as financial advice. You are responsible for your own financial research and decisions. When investing capital is at risk.
FTSE Global All Cap Index vs S&P 500 Historical Performance
The returns of the S&P 500 have been some of the best compared to other stock market indices, the FTSE Global All Cap Index included. The global index tracker has actually lagged behind the S&P 500 over the last 3-5 years. In absolute terms yes the S&P 500 has would have given you a 3 year return of +15.6% vs +12.03%. I’ve also displayed the Vanguard FTSE All-World UCITS ETF for a 5 year comparison also.
Funds that simply track the S&P 500 are often cheaper for the reason that they only have to track one index.As a result you might be thinking that as the S&P 500 index fund is cheaper and offers better returns that you don’t need to invest in a more diversified portfolio.
Do You Need FTSE Global All Cap Index For International Diversification?
Global index tracker funds are weighted towards US Large Cap Stocks, with a 50-60% allocation. Whilst geographical diversification is great but this aspect of investing can be blurred by the fact that many S&P companies operate internationally (i.e. Facebook, Amazon and Google, Coca Cola).
By capturing a subsection of the US economy with something like the S&P 500 you are also capturing a segment of international economies.Therefore, some would argue you do not need to invest internationally. The ever blurring lines between nations because of these global companies, adds weight to this argument.
Even prior to this, in 2008 and even as far back as 1929 we can see that we have a global economy. The impacts from the US economy are often seen around the world. Even if you invest in the FTSE Global Cap Index your portfolio is likely to be weighted by S&P 500 stocks.
Tech Firms Are Likely To Dominate The S&P 500
It seems likely that technology firms will continue to rise and dominate the global economy for the foreseeable future. For example, there will be major disruptors in the fields of Artificial Intelligence, Robotics or Green Energy. Like we have seen with SpaceX and Space Travel. However, it seems more likely that the major corporations that already exist will amalgamate any new arrivals, or pump their billions into these industries as we have seen Jeff Bezos (Blue Origin) and Richard Branson (Virgin Galactic) do already.
As a result indices such as the S&P500 and the Nasdaq would continue to surge and dominate the economy. Innovation breeds economic growth. Again, this is purely speculative, but that’s the whole point. We just can’t tell the future. Until we can, I want to diversify as much as possible. The FTSE Global All Cap Index, offers that option.
Although it’s worth mentioning the U.S. stocks are heavily weighted in global funds such as the FTSE Global All Cap Index Fund. Whilst the U.S. remains an economic superpower this will remain true. As a result FTSE Global All Cap will retain around a 60% allocation in U.S. Stocks. This will however include both small and mid-cap stocks.
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Is the FTSE Global All Cap Index A Better Long-Term Investment?
Despite the S&P having had a stronger performance, I still think the FTSE Global All Cap Index is still the better long-term investment. The reason for this is three-fold:
- We need to protect ourself from unpredictable and catastrophic events.
- There is a possibility the S&P will enter a stock market bubble.
- International markets have significant growth potential.
Of course, this is purely speculative but I think there are a number of reasons you might want to balance your bets, rather than go all-in on the S&P 500. This is because it can be dangerous to chase returns, and it’s natural to look at the last 5 or 10 years of the US stock index’s performance and assume that will continue.It might well be the case that it will continue.
I would rather be sceptical and balance my position in favour of diversification. This means that personally, I prefer a highly diversified fund based on something like the FTSE global all cap index. This is one of the main questions I would think about when comparing s&p500 vsother funds.
#1 The US Stock Market Could Be In A Bubble
Black Swan Events are rare, unpredictable and catastrophic events, which are extremely difficult to predict. A stock market bubble, price distortion and subsequent crash due to a unforeseen reason could occur. You are unlikely to know where or when the next bubble is going to rise and rupture. This is because it will likely be a result of a Black Swan event.
The US stock market could be the next victim of an unexpected economic event with disastrous consequences. It seems unlikely but it’s entirely possible. There are a number case studies that we can refer to that support this position. For example;
- The Japanese Nikkei in the late 90s.
- Dot.Com Bust in the early 2000s.
This is to name just two instances where stocks have roared to a peak in specific economies, only to end the crisis. As a result, there are 3 specific reasons I think the FTSE Global All Cap Index is better than the S&P 500 for the long-term investor.
To some extent you may argue that many could have anticipated the above stock market bubbles. Just like many people can now see the rapid expansion of the Bitcoin and Cryptocurrency mania. However, you cannot predict Black Swan events such as Covid-19 which 99% of people did not see coming, and these have unexpected impacts on economies.
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#2 The S&P 500 Is Overheating
At the moment the S&P 500’s P/E ratio is around 38. This is 90% above it’s historical average of around 19. However, the earnings trail behind the valuation of many of the constituents of this index right now. This means that whilst the
a fund such as the vanguard ftse global all cap index fund is US heavy, it won’t be completely dependent on the performance of one index.
Many investors have been fleeing to stocks due to low-interest rates, poor bond returns, and other economic factors. Institutional Investors have also been selling or avoiding stocks that have been negatively impacted by Covid-19 whilst buying up well-performing tech stocks.
As a result, the S&P 500 has been supercharged in value. In recent times just 5 stocks; FacebookFB, -0.36%, AmazonAMZN, -0.08%, AppleAAPL, +0.98%, MicrosoftMSFT, +0.25%and Google owner AlphabetGOOGL, -0.20% (FAAMG), constituted almost 20% of the S&P 500 and 50% of The Nasdaq 100.
Markets Don’t Always Recover From Market Crashes
The same cannot be said for other market indices. The FTSE 100 are much lower in price and have had a much slower recovery. Only recovering to its February level of 7000 in June 2021. This will be the same for many other constituents of the FTSE Global All Cap Index. Which potentially translates to better value for money and less risk that the value may go down. Compared to the S&P 500, the FTSE global all cap index spreads risk across a number of international markets.
It could be that earnings catch up with the valuation of the S&P 500 and Nasdaq etc., or it could result in a sharp correction or bear market. There are of course a number of factors that place the odds well in favour of another market crash.We also know from previous market crashes that whole economies can lose entire decades of growth. For example, the Italian MIB index has never recovered since the 2008 financial crash. Which begs the question, will the stock market even recover after the next crash? You can read about the answer to this here. Who knows, this could happen to the US economy, in a future decade.
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#3 Emerging Markets Have Strong Potential Returns
The FTSE Global All Cap Index capture emerging markets, which have high growth potential. For example, China and India have seen rapid economic growth in the past two decades. If you would have been entirely in US stocks you would not have benefited from this growth to the same extent. Whilst the US or European markets may stagnate in the next decade (a purely speculative statement), these emerging markets may be subject to substantial growth.Thus limiting the detrimental impact of poorly performing markets on your portfolio. During 08/09 even developed economies such as Australia, which had a strong economic partnership with China, managed to avoid recession in 2007 because of their exports.
Moving forwards, there is also a chance that a country such as China could start to dominate major industries such as technology, energy and even space travel.In recent years we have already seen the rise of companies such as Tencent, Huawei, Alibaba. They are amassing some serious data and technology capabilities. This means the FTSE Global All Cap Index can capture this growth as part of a diversified portfolio.
Is FTSE Global All Cap Index Is Better Than S&P 500?
Whilst I would personally never consider the S&P 500 a bad investment I prefer to err on the safe side of caution and this means extra diversification The FTSE Global All Cap Index is diverse for many reasons, you can invest across a range of geographics, industries sectors, cap size etc. This is to a much greater extent that the S&P 500 is predominantly focused on large cap companies in the US.
When index tracking there is really no getting away from the S&P 500, so to some extent it doesn’t matter either way. At least until there is a major shift in market caps, for example China becomes an even bigger player in the stock market. What is important is a consistent long-term investment strategy and both of these funds can form part of that.
However, your options are obviously not limited to either the FTSE All Cap Index or the S&P 500. There are at least 8 index funds, both US and international in nature that make my own shortlist. There is also one other investment type that I feel adds a yield shield to my investments. When it comes to your wider investment strategy, you need to consider your wider asset allocation. Whilst the FTSE global all cap index may be suitable for some investors perusing growth, other’s may want a more balanced or defensive portfolio.
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How Else Can You Protect Your Investments?
In short, trying to time the market usually results in disastrous consequences. It can half your investment returns and there are 5 things that you should doinstead. Let’sreturn to the examples of the FTSE 100 and the Italian MIB which have struggled to grow since 2008. What would happen if the S&P suffered the same fate, what sort of returns should you expect?
Surprisingly positive actually. Assuming you invested right through the period of stagnation and in all the peaks and troughs of the decade. If you would have invested the majority of your net worth into Italian stocks during 2007 and never invested again, you would be at a loss. However, if you would have continued to reinvest your dividends in the FTSE 100, your return would have been 122%.
Conclusion: FTSE Global All Cap Index Vs Other Index Funds
Hopefully this FTSE Global All Cap Index Fund review has outlined some of the key strengths and weaknesses of this fund. It’s hard to know what the best investments for your future are and it can seem overwhelming to make an informed decision that will give your portfolio the maximum potential for success. Investments are risky, but you can’t afford to miss out on opportunities. You need a way to track and manage your portfolio, so you don’t miss out on any potential gains or losses.
Our hand selected portfolio lists give you the information you need to make the best decisions for your future. With our easy-to-understand fund guides, you can select a fund with confidence, so you don’t miss out on any potential gains or losses. Invest in your future with the best portfolio choice— see the 8 Index Funds that make my shortlist.
This shortlist also contains funds that capture both the FTSE Global All Cap and the S&P 500. This includes Global funds with extraordinary returns. Ourshortlist contains some excellent “Fund of Funds” options. You can capture an index fund such as the Fidelity Index US Fund P Accumulation, whilst buying into REITS and Emerging Markets.
These low-cost index tracker funds offer incredible returns and you pay less in fees. You may also want to know how to directly track an index like the S&P 500. There are also some excellent alternatives to the S&P 500 and the FTSE Global All Cap Index.
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