If I had invested £1k last year in the S&P 500, here’s how much more I’d have compared to the FTSE 100

In the past few years, the US stock market has exploded. There are many valid reasons for this, including the concentration of technology stocks in S&P 500. Even though I’m a UK investor, I don’t have any major restrictions on investing on the other side of the pond. So it got me thinking about what would be the difference in returns if I invested in the S&P 500 instead of the FTSE 100.

Counting numbers

If I had invested £1,000 in an S&P 500 tracker fund this time last year, it would currently be worth £1,350.29. In contrast, my FTSE 100 tracker fund would cost £1,080.61.

The difference is £269.68. This is a lot, especially when I consider that it is almost a 27% difference in the space of just one year!

The performance of an index is simply the sum of all the components within it. So when I look at the best performing stocks, I see one factor that has caused the biggest divergence. For example, in the S&P 500, Company Vistra Corp (NYSE:VST) is up 322% over the past year. Nvidia not far behind, with a whopping 206% gain.

If I look at the FTSE 100, it’s the best performing stock Rolls-Royceincreased by 152%. The second best Marks and Spencerincreased by 72%. So there is a clear difference in the size of the gains from the stocks that help lead the charge for each index overall.

A different mix

Another reason for the difference is due to the shares included. The S&P 500 contains some of the biggest and hottest stocks, especially those related to artificial intelligence (AI). This has been one of the most profitable themes in 2024, with a large number of investors jumping on the bandwagon.

Vistra Corp is a good example. It is an integrated electricity trading and power generation company. The stock price has recently risen due to expectations of high demand for power-hungry AI processes. Many technology giants are looking to use nuclear power as a low-cost and sustainable energy source.

So while Vistra is not a typical AI stock, the indirect benefit of growth in this area should have a very positive impact on the company. Of course, the other risk here is that the financial benefits are probably still a long way off, as new plants need to be built and contracts agreed upon. I’m not saying the share price is in a bubble, but investors are clearly happy (perhaps too happy).

On the other hand, the FTSE 100 is weighted in resource stocks – such as miners and oil giants – and stocks in financial services. Such sectors may or may not have had a bad year, but even on the positive side, there hasn’t been the same kind of growth expectations compared to something like AI.

Looking ahead

Past performance does not guarantee future returns. Some flagged that the US seems too important. For example, the price-to-earnings ratio of the S&P 500 is 29.93. For the FTSE 100 it is 14.47. So the S&P 500 is worth twice as much!

In that area, I can make the argument that if I had invested last year, I would have considered banking some of the profits and reinvesting that money in UK stocks now instead.