Simple Pound

Thanks for visiting! If you like what you're reading, you may want to subscribe to my RSS feed.

After I have talked you through many, many, many indices in various countries and on various continents, we need to draw some conclusions to actually make all of this worthwhile.

The main criteria for the list will simply be the medium-term growth rate (I consider 5 years to be medium-term since long-term investing is usually assumed to be > 10 years). The 5 year span should be sufficient to expose a growth trend, but there’s obviously no guarantee - especially if you’re looking at countries like India, which have become very fashionable in the last few years. If you remember the last “fashion trend” and what happened (I’m talking dot.com bubble…), you should know what I am talking about. On the other hand, most of you will be young and far away from retirement, so there’s nothing wrong with a little risk in your investment - if you’re that sort of person.

So here we go - the Top 5 indices of the “What are we tracking” series:

1. India - BSE Sensex (BSE 30): 5 year growth rate of 400.88%
2. UK - FTSE Fledgling: 5 year growth rate of 126.66%
3. UK - FTSE 250: 5 year growth rate of 92.65%
4. Hong Kong - Hang Seng: 5 year growth rate of 90.28%
5. Spain - IBEX 35: 5 year growth rate of 84.53%

I don’t know about you, but I’m quite impressed with these numbers. Most of them would have doubled your capital since 2002! The next challenge, however, is going to be to find index funds that are actually tracking these indices. I will keep you posted on my research, but you are obviously more than welcome to share your experiences and/or tips with the rest of us in the comments!

Bookmark It

Hide Sites

By now, we have covered an extensive list of indices and I have decided not to cover anything too exotic like South-American or African. The reasons for this are fairly simple: I’ve collected all this information to make it easier for me (and others) to judge which indices might possibly yield the best return in the long(er) run. However, we may also not forget that we have to find index funds which are actually covering those indices, i.e. the more exotic it gets, the harder it is to find appropriate funds and the more expensive the fund’s fees will be. Therefore, I will stop - after looking at major Asian indices - and return to our original investigation of investment possibilities…

But before then, here’s a brief overview of Asian indices:

• Hong Kong: The Hang Seng (HSI) is a capitalisation-weighted stock index for the Hong Kong Stock Exchange. It covers the 36 leading companies listed and represents about 65% of the overall capitalisation on the Hong Kong Stock Exchange. The Hang Seng is a rather old index - started in 1969 - and is maintained by a subsidiary of Hong Kong’s second largest bank (Hang Seng Bank - in case you were wondering). It has grown by 90.28% in the last 5 years.

• Japan: Japan’s main stock index is the Nikkei 225 and together with the Dow Jones and the FTSE 100 it is probably the most commonly quoted stock index with investors. The index is price-weighted and contains Japan’s 225 largest companies (well, those that are listed on the Tokyo Stock Exchange…). The Nikkei includes an interesting variety of industry sectors including bus companies, fishery, precision instruments and shipbuilding. It reached its all-time high in December 1989, but has grown a respectable 58.42% in the last 5 years.

• China: The Shanghai Composite Index is the oldest stock benchmark for the Chinese securities market and covers all stocks traded on the Shanghai Stock Exchange. It has grown by 47.4% within the last 5 years, even though most of this growth can be attributed to the previous 2 years as you can see nicely in the chart below.

• India: The BSE Sensex (unfortunate acronym for Bombay Stock Exchange, which is the oldest stock exchange in Asia) is a value-weighted index of the 30 largest and most actively traded stocks on the Bombay Stock Exchange. It’s base was set to 100 in April 1979 and since then the index has been growing at a rate of roughly 27% per annum (~18% per annum after compensating for inflation). Between 2002 and 2007 it grew by an astonishing 400.88% - and trust me, I’ve done the Maths twice to double-check that result! The index, which is also called BSE30 is currently quoted at 13,384 points.

I’m too busy marveling at that phenomenal growth rate to come up with a decent closing sentence. The good news is, we’ve completed our research on (readily) available indices now and can thus draw conclusions - Top 5 list in the pipeline! I know who’s gonna be first…

Read the last part of “What are we tracking?” on the top 5 indices >>

Bookmark It

Hide Sites

Enjoy part 2 of the selection of European indices that might be considered as base indices for a tracker (index) fund.

• Spain: The IBEX 35 is yet another capitalisation-weighted stock market index which includes the 35 most liquid Spanish stocks traded on the Bolsa de Madrid. It grew by a solid 84.53% within the last 5 years.

• Sweden: Sweden’s main stock index is the OMXS30, which consists of the 30 most traded stocks on the Stockholm Stock Exchange. The OMXS30 is market-value-weighted as opposed to the more common capitalisation-weighted indices we’ve encountered so far. Companies represented by the index include AstraZeneca, Ericsson, H&M, Nokia and Volvo. Contrary to my expectation, IKEA is not among them… The index grew by 54.41% since its inception in July 2004, i.e. in under 3 years.

• Norway: The Oslo All-Share Index (OSEAX) is a market-capitalisation weighted index consisting of all shares listed on the Oslo Stock Exchange. Its base value was set to 100 in December 1995 and it is currently priced at 527.40. Of this overall growth, 31,74% can be attributed to the last 5 years.

• Denmark: The OMX Copenhagen 20 is the top-tier stock market index of the Copenhagen Stock Exchange and is a market-value weighting of the 20 most traded stocks. It grew by 53.76% since April 2002.

• Switzerland: The SMI (Swiss Market Index) is Switzerland’s blue chip index and therefore the leading index in Switzerland. It consists of the 30 largest and most liquid stocks listed on the Swiss Exchange (SWX) and represents ~90% of the total market capitalisation of all Swiss and Liechtenstein equities on the SWX. Companies like Merck, UBS and Nestle are among the companies currently tracked by the SMI. The index was introduced in June 1988 at a baseline value of 1500 points and is currently traded at just under 9,200 points. 71.78% of the growth occurred within the last 5 years.

The final selection of Asian indices will follow shortly before I’ll return to the original series on Investment Choices.

Read part 5 of “What are we tracking?” on Asian indices >>

Bookmark It

Hide Sites

I have already mentioned how important diversification is in order to minimise the impact that one sector’s / index’s performance can have on your overall returns, and by examining stock indices abroad I’m hoping to provide you with a decent selection of possible indices to invest in.

This time I will have a look at European indices, but since there are plenty of countries to choose from, I will only look at one key index per country. Despite this restriction I felt that you might be overwhelmed by too much information at once (and let’s not forget I’ve got finals in 3 weeks…) which is why I have divided the topic into two posts.

If there is any (European) country you are particularly interested in and that I haven’t mentioned, please leave a comment or start your own research here or here.

• Belgium: The BEL20 is the main stock index for the Euronext Brussels. The shares represented by the index are chosen by the Euronext market authorities based on criteria like market capitalisation. There is a striking dominance of financial companies which represent about 40% of the index’s market capitalisation, compared to a weight of < 8% given to technology- and telecom-related shares. The index has experienced a growth of 64.32% in the last 5 years.

• France: The main French benchmark index is the CAC 40, which is a capitalisation-weighted measure of the 40 most significant values among the 100 highest market caps on the Paris Bourse. It was started at a base value of 1,000 in December 1987. The companies represented in the CAC 40 are mainly multinational companies which means that despite their French origins about 45% of the shares are owned by foreign investors. Companies included in the index are for example AXA, BNP Paribas, Carrefour or Renault. The index has gained 27.14% within the last 5 years.

• Germany: The Xetra DAX is the most important stock index in Germany. It is a blue-chip index consisting of 30 major companies trading at the Frankfurt Stock Exchange. Companies represented by the index include Adidas, BASF, BMW, Daimlyer Chrysler, Deutsche Bank, Lufthansa and SAP, all of which have contributed to a growth of 35.15% in the last 5 years.

• Italy: The S&P MIB is currently Italy’s most important stock index and lists the 40 most largely-capitalised stocks traded on the Borsa italiana. It has been commonly used since September 2004 when it replaced the MIB 30. The index grew by 30.64% within the last 5 years.

• Netherlands: The Amsterdam Exchange Index (AEX) is a stock market index that is composed of the 25 largest companies that trade on the Euronext Amsterdam. The maximum weight any company can have within the index is restricted to 15%. ABN Amro, Philips and Unilever are just a few of the many well-known companies represented by index, which experienced a huge fall in 2002. Therefore the overall growth for the last 5 years is currently only 1.39% even though it grew by 48.41% within the last three years.

• Portugal: The Portuguese Stock Index (PSI 20) lists the 2o largest and most liquid share issues from all companies on the Portuguese stock market. The constituent weights are limited to 20% of the index capitalisation. The PSI 20 experienced a growth of 54.56% in the last 5 years.

The next post is going to cover Spain, Switzerland and the Scandinavian countries in the North who are usually known for their great economic strength - I’m curious whether that’s reflected in the growth rate of their stock indices!

Read part 4 of “What are we tracking?” for more European indices >>

Bookmark It

Hide Sites

Diversification is probably one of the most often used buzzwords of any investor. The reason for this is called minimising risk - even the best investors (which are, may I remind you, most often people who spend all day researching) will eventually get something wrong and a fund or stock that was supposed to become tomorrow’s miracle simply didn’t. As long as you haven’t invested all your available money in this one option, any losses in that position will be balanced by the gains made with others.

That’s why I’m not only going to look at UK indices, even though you could argue that investing in a fund already provides you with a pretty good diversified portfolio to start with. But pretty good might not be enough if the whole economy here is heading towards a slow-down (I’m not saying it is, just it could), while other countries are experiencing a phenomenal boom.

So after we’ve examined UK indices in more detail, I want to have a closer look at what the United States have got to offer (in terms of investment…).

• Dow Jones Industrial Average: Commonly called “the Dow“, this index consists of the 30 largest and most widely held public companies in the U.S. Most of these companies have little to do with heavy industries, so the “Industrial Average” part of the name is mainly to be seen in a historical context. It was first published in May 1896 and started at a level of 55.6 being the simple average of the 12 companies represented in the Dow at the end of the 19th century. Among the companies (now) included in the Dow Jones are Intel, Microsoft, Pfizer, AT&T, Exxon Mobil, Coca Cola, Walmart and many other well-known corporations. The Dow Jones I.A. gained 23.11% in the last 5 years.

• S&P 500: The Standard & Poor’s index contains 500 large-cap corporations listed on major US stock exchanges (e.g. the New York Stock Exchange), which are selected by a committee and in fact include a few non-U.S. companies (11 in 2006). It is the most widely watched index after the Dow Jones I.A. and considered to be a bellwether for the US economy. The 100 leading U.S. stocks within the S&P 500 eventually got an index in their own right: the S&P 100. Its constituents are selected for sector balance and represent about 45% of the market capitalisation of the U.S. equity markets (~ 57% of the S&P 500’s market cap). Familiar companies within the index include Oracle, Pfizer, Cisco, Dell and Ford. The S&P 500 (blue, below) grew by 29.24% within the last five years, while the S&P 100 (red, below) only increased by 17.04% during the same period.

• Nasdaq Composite: The NASDAQ is an American electronic stock marke, that currently lists a little more than 3,000 companies (3,125 if you really wanted to know) which are aggregated in an index called the Nasdaq Composite. This index is commonly taken as an indicator of the performance of technology stocks - after the dot com bubble burst, the index declined to half its value within a year and is still trading for less than half of its peak value (5,132.52 in March 2000). The Nasdaq 100 (blue, below) is a subset of the Nasdaq Composite comprising the 100 largest (domestic and international) non-financial companies listed on the Nasdaq Stock Exchange. It grew by 34.41% in the last 5 years and includes firms like Sun Microsystems, Apple, Ebay, Yahoo!, Sandisk, Adobe and Google.

After covering the major indices in both the UK and the United States, I’ll shortly investigate what’s available in Europe and Asia, which should be exciting as this will include indices covering emerging markets!

Read part 3 of “What are we tracking?” on European indices >>

Bookmark It

Hide Sites

I gave you a brief introduction to index funds the other day and realised that my knowledge of indices beyond the FTSE 100, the FTSE AIM or the S&P 500 was rather limited. To give you an idea what indices are available that you can track using index funds, here’s a list of the main indices in the UK. This list won’t by any means be complete, but instead only cover the common indices. For further information, Digital Look or Morningstar are good places to start investigating…

• FTSE 100: The footsie 100 covers the 100 most highly capitalised (i.e. largest) companies listed on the London Stock Exchange (LSE). It was first used as a benchmark in January 1984 with a base value of 1000 and reached its highest value so far in December 1999 with 6950.60 base points. The FTSE 100 is seen as the leading share index in Europe and is a barometer of the success of the British economy. According to the FTSE Group’s website the index represents about 80% of the UK share market (in value). Represented companies include Vodafone, HSBC, BP, Sainsbury, Cadbury Schweppes and 95 others The FTSE 100 (blue, below) has grown by 22.24% in the last 5 years.
• FTSE 250: This index covers the 101st to 350th largest companies who have their primary listing on the London Stock Exchange. This includes companies like: Ladbrokes, Woolworths, Carphone Warehouse, First Choice and HMV. The index has grown by 92.65% in the last 5 years (red, below).

• FTSE 350: This index is simply an aggregate of the FTSE 100 and FTSE 250. Overall growth in the last 5 years was 30.23%.
• FTSE Small-Cap: The FTSE Small-Cap index represents all companies outside the FTSE 350 range and includes approximately 2% of the UK market capitalisation. It has grown by 58.80% in the last 5 years.

• FTSE All-Share: The FTSE All-Share index lists all companies currently traded on the LSE. It is an aggregation of the FTSE 100, FTSE 250 and FTSE Small-Cap Index. It has grown by 31.05% in the last 5 years.
• FTSE AIM 100: The FTSE Alternative Investment Market 100 index contains the 100 largest companies with a primary listing on the AIM. The objective of the AIM is to offer smaller companies from any country or sector the chance to raise capital on one of the world’s leading exchanges (i.e. London). According to their website, AIM companies originate from 37 sectors, 90 sub-sectors and 26 countries. The AIM 100 was introduced in May 2005. The AIM 100 (blue, below) has fallen by 9.19% in the last year, but grown by 22.18% in the last 6 months.
• FTSE AIM 50: This index overlaps partially with the AIM 100 as it lists the 50 largest UK companies with a primary listing on the AIM. Like the AIM 100, it was introduced in May 2005 (red, below). The index has fallen by 11.82% in the last year, but grown by 19.85% in the last 6 months.

• FTSE AIM All-Share: As the name suggest, this index includes all shares listed on the Alternative Investment Market. It has shown a growth of 38.04% in the last 5 years.
• FTSE Fledgling: This index represents companies that have shown superlative returns in the past. These companies are likely to be involved in growth areas of the economy like the consumer service sector which, according to the LSE website, has experienced a 1500% positive change in their sector share price in the last 5 years. The index as a whole has grown by 126.66% in the last 5 years.

• FTSE techMARK: This index is supposed to reflect the performance of technology stocks listed on the LSE. It has a “little brother”, the techMARK 100, which represents the 100 largest technology companies listed on the London Stock Exchange. The techMARK (blue) has grown by 23.04% in the last 5 years, while the techMARK 100 (red) managed a growth of 38.90% in the same period.

That’s it for the major UK indices. I will have a closer look at US indices, European indices (excluding UK) and Asian indices soon.

Read part 2 of “What are we tracking?” on US indices >>

Bookmark It

Hide Sites