Yet the media obsession with the FTSE 100 obscures the many nuances always at play in the world of investing. Indices like the FTSE 100 are important, of course, given the rise of tracker funds and ETFs that rely on them as their benchmark, and the huge amounts of investors’ money flowing into them. We certainly think such products have a role to play in portfolios, offering an easy, low-cost way to implement asset allocation-led strategies at their core. Some take the view that it’s impossible to beat the market over the long term and that index trackers are all you need.
If there were index trackers that offered a more granular approach to investment I might agree with this – but beyond major indices tracking options are thin on the ground. The FTSE Small Cap and Aim indices have both had relatively good years – up 6.4 and 5.1 per cent respectively so far versus the 4.8 per cent fall in the FTSE 100. But neither are investable as trackers – the closest you’ll get are ETFs based on the MSCI UK Small Cap, which isn’t really a small-cap index anyway; its average market cap is well in excess of £1bn.
Nor do I accept the view that beating the market is impossible, and I’d like to hold up our tips of the week as evidence. With the volume of ideas we put forward over the year the aggregate performance should revert to the benchmark mean; that it hasn’t over 1 and 3 years suggests a good stockpicking eye can deliver alpha. Our flagship tips of the year, which we approach with more of a holistic mindset, have done even better this year, up around 19 per cent in the year to date – we’ll put some commentary around this in next week’s issue as well as our best ideas for 2016.
To round off the year we’re sticking to the theme of stockpicking with our lead features, having spoken to some of the best small-cap fund managers in the business to see how they get it right time after time. If you haven’t made any New Year’s resolutions yet, their advice is well worth adding to your lists.
