The FTSE isn't as strong as you think and you aren't doing as badly
It's been a pretty brutal twelve months for everyone investing in stock markets - not only here, but all around the world. But one area of optimism has been the performance of the UK broader benchmark - the FTSE All Share.
According to my measurement, the FTSE All Share has fallen by 6.2% over the last 12 months since October 4th. Given the index has yielded 2.77% over that timeframe, it's been pretty robust in what have been very difficult markets.
But most of us are down 20%+ in this timeframe. Some subscribers have written in who have constructed their portfolios using 80+ ranked stocks and asked why the they are underperforming the FTSE so badly.
It's a good question... but are we really underperforming?
Value Weighting vs Equal Weighting
One of the most vital things to get your head around when assessing an index's performance is *how the positions are weighted*. This has a huge impact on the reported returns.* Value Weighting - often called "market capitalisation weighting" - is weighting each position relative to the total value of the company's shares (market capitalisation). In this way Shell (at £161bn market cap) will we weighted almost 12,000 times larger...