Which has the best stock market returns: the FTSE 100 or S&P 500?

I have a balanced diversified portfolio. However, my Stocks and Shares ISA portfolio is admittedly skewed towards UK stocks. Luckily, I saw the leading UK index (FTSE 100) as global equity stock market. These constituencies have various sources of international income. However, more global stock diversification wouldn’t go amiss for me right now.

My passion has ramped up after coming across some compelling data. The data shows the performance of S&P 500 has comfortably trounced the FTSE 100 and most other major world markets since the dawn of this century.

Is there a US market premium?

I have no doubt that supporting the US market since the millennium will be a smart investment decision for me.

The index is a better fundamental choice for me than the FTSE 100. First, the S&P 500 is less concentrated than the FTSE 100. As you know, the S&P 500 tracks more companies than the FTSE 100. a more diverse world of stocks. In addition, the largest market cap companies have a greater influence on the FTSE 100 than ever before. For example, the top 10 stocks in the S&P 500 make up about 30% of the index. Meanwhile, this number rises to 40% when looking at the FTSE 100.

The outperformer of the century

Of the leading blue-chip indexes, the S&P 500 has always been superior. However, I note that better returns are available closer to home. I was surprised to find that the more junior FTSE 250 index – which tracks UK medium-sized companies – has performed more strongly than the S&P 500 since the turn of the century. The S&P 500 has returned around 6% annually since 2000. But the FTSE 250 has returned 7%!

The risk for me when investing in UK mid-cap companies is that they tend to be more wedded to the UK economy than blue chip stocks.

However, I believe this trend is changing. According to FTSE Russell, just over half of the earnings of the FTSE 250 companies come from overseas today, compared to more than three quarters for the FTSE 100. Of course, I believe that the FTSE 250 is becoming more diverse with time.

Consider some stock markets

Clearly, medium-sized companies offer greater growth potential than blue-chip stocks in major indexes like the FTSE 100 and the S&P 500. I think this is the reason they beat all other stock markets for two-and- and a- few decades. Of course, this outperformance comes with a rockier and more volatile ride against the blue-chip index. But there is no reward without risk.

Past performance is, of course, no indicator of future performance. But the most important thing for me here is that all the major stock markets I’ve mentioned, whether in the US or the UK, have all been booming since the turn of the century.

Global diversification is an important element of my investment approach. I can get serious rewards if I choose the best company from each of these stock markets.