Since the lows of March 2009, the FTSE100 index has underperformed the S&P500 by a staggering 428.66%. Strangely, prior to the Great Financial Crisis, the performance of both indices was fairly similar, so what sparked this massive rally from our American friends? Quantitative easing certainly had a lot to do with that, but we also printed money in the UK, so it seems there are other forces at play.
For one, there is the composition of the indices. The biggest stock in the S&P is Apple. In the FTSE, it's Shell. They have Tesla and Nvidia, whereas we have Unilever and Diageo. If that weren’t bad enough, consider that Microsoft is worth almost as much as all the one hundred companies in the UK’s main stock index combined. Clearly, it’s great to be in tech and nothing compares to u (Sinéad O'Connor, 1990).
Then there are the currencies, and this is where things get a bit odd. More than 71% of revenues generated by FTSE 100 companies come from outside the UK. With Sterling weakening by 43.3% against most major currencies (BXY Index) since before the crisis, comes a major boost to earnings. You would think that to be reflected in the performance of these stocks, but it may yet be just another indication of how big the headwinds truly are.
What about Dividends? It is true that the FTSE100 index has a much higher dividend yield than the S&P500. However, after paying taxes on the money we take off the table, that seems a scant consolation when we could have otherwise made four times more money. Evidently, the only saving grace for those that invested locally, seems to be that Europe hasn’t done much better. All hail Brexit.