Unfortunately, this is a big mistake.

You see, the FTSE 100 isn’t really a UK index. It may be London’s most important index, but the FTSE 100 does not represent the UK. It’s estimated that 70% of the FTSE 100’s profits come from outside the UK. 

Nor does the index give a fair view of the market. Indeed, the FTSE 100 is more of an international resource and finance index than anything else. 

Mining and banking

For example, the oil & gas sector accounts for 14.5% of the FTSE 100, with Shell and BP making up around 10%. Mining account for 7% of the index, while banks make up 13.3%. 

Clearly, the FTSE 100 is not the best index for investors to follow. If you want to benefit from UK economic growth, the FTSE 250 is the best index to track. Almost all of the index’s constituents are UK born and bred. 

Over the past 16 years, the FTSE 250 has risen by over 230%, excluding dividends. Over the same period, the FTSE 100 has only gained a dismal 10.5%.

However, if you’re really looking to boost your returns, and benefit from global growth, the S&P 500 and the STOXX Europe 600 are the two indexes you need to track. 

International growth

The S&P 500 is the US’s leading stock index. Grouping together 500 of the largest companies in the US, and the world, the index’s total market capitalisation exceeds $15trn. There are around 40 companies in the index with a market value of over $100bn. 

And the S&P 500 performance has eclipsed that of the FTSE 100 over the past 35 years.  

A simple analysis shows that since 1 January 1980, the S&P 500 has returned 1,829%, excluding dividends. Over the same period, the FTSE 100 has only returned 542%. London’s leading index has underperformed by 1,287%. 

Play on Europe

The STOXX Europe 600 is a European index that represents 600, large, medium and small-cap companies across 18 countries of the European region. 

Over the past five years, the index has returned 70% excluding dividends and outperforming the FTSE 100 by 35%. 

International indexes like the S&P 500 and STOXX 600 are better plays on the global market than the FTSE 100. But, by buying into overseas assets, investors expose themselves to foreign currency risk. 

However, many fund managers now provide tracker funds that are hedged, to reduce the effect of fluctuations in the exchange rates.

Hedged trackers

The iShares S&P 500 GBP Hedged UCITS ETF only charges 0.45% per annum and tracks the S&P 500 without exposing you to currency risks. 

For Europe, there’s the UBS MSCI EMU hedged GBP UCITS ETF, which tracks the 439 constituents of the MSCI Europe. The ETF pays a gross dividend yield of 3.2% and charges 0.33% per annum in fees.

Also, investors can look to the Lyxor UCITS ETF EURO Stoxx 50 Monthly Hedged C-GBP fund for hedged exposure to Europe. The Lyxor fund charges 0.2% per annum. 

Lacking income

These indexes may offer exposure to international grow but their dividends leave much to be desired. At present, the S&P 500 only offers a token dividend yield of 1.9%.

The post Why You Should Look Past The FTSE 100 For The Best Returns appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.