Over the previous couple of years, the inventory market within the US has exploded greater. There are numerous legitimate causes for this, together with the focus of tech shares within the S&P 500. Regardless that I’m a UK investor, I don’t have any main restrictions as to investing the opposite aspect of the pond. So it obtained me eager about what the distinction in revenue can be if I’d put cash within the S&P 500 as a substitute of the FTSE 100.

Calculating the numbers

If I’d invested £1,000 in a S&P 500 tracker fund this time final yr, it will presently be value £1,350.29. In contrast, my FTSE 100 tracker fund can be value £1,080.61.

The distinction £269.68. This can be a lot, particularly once I take into account that it’s virtually a 27% distinction within the area of only one yr!

The index efficiency is just the sum of all the person constituents inside it. So once I take a look at the top-performing shares, I can see one issue that has prompted the massive divergence. For instance, within the S&P 500, Vistra Corp (NYSE:VST) is up 322% over the past yr. Nvidia isn’t far behind, with a whopping 206% achieve.

Once I take a look at the FTSE 100, the very best performing inventory is Rolls-Royce, up 152%. The second greatest is Marks and Spencer, up 72%. So there’s a transparent distinction within the dimension of good points from the shares that assist to guide the cost for every total index.

A distinct combine

Another excuse for the distinction is because of the shares which can be included. The S&P 500 comprises among the largest and hottest shares, significantly these associated to synthetic intelligence (AI). This has been probably the most worthwhile themes in 2024, with a major variety of traders leaping on the bandwagon.

Vistra Corp is a good instance. It’s an built-in retail electrical energy and energy technology firm. The inventory price has surged not too long ago because of the expectation of upper demand from energy-hungry AI processes. Extra tech giants need to make use of nuclear power as a lower-cost and extra sustainable type of energy.

So regardless that Vistra isn’t a traditional AI inventory, the oblique profit from the expansion on this space ought to have a major optimistic influence on the corporate. After all, one threat right here is that the monetary payoff is probably going a way off, as new crops must be constructed and have contracts agreed. I’m not saying the share price is in a bubble, however traders are clearly excited (possibly a little bit too excited).

Then again, the FTSE 100 is weighted in the direction of sources shares — like miners and oil giants — and shares in monetary providers. Such sectors could or could not have had a foul yr, however even on the plus aspect, there haven’t been the identical form of progress expectations compared to one thing like AI.

Trying forward

Previous efficiency doesn’t assure future returns. Some flag up that the US appears to be like overvalued. For instance, the typical price-to-earnings ratio for the S&P 500 is 29.93. For the FTSE 100 it’s 14.47. So the S&P 500 is principally twice as costly!

From that angle, I could make an argument for saying that if I had invested final yr, I’d take into account banking some revenue and reinvesting that cash in UK shares now as a substitute.