For a UK-based investor, one of the most common early decisions when building an index fund portfolio is how much to allocate to the domestic market versus international markets — and in particular, how to weigh the S&P 500 against the FTSE All-Share. Both are well-established, low-cost index options, but they represent very different economies, sector compositions, and currency exposures. This article compares the two and sets out the case some investors make for global diversification over a home-biased approach.
What each index actually represents
The FTSE All-Share
The FTSE All-Share is a market-capitalisation weighted index covering effectively the entire main market of London-listed UK companies, spanning large-cap (FTSE 100), mid-cap (FTSE 250), and smaller companies. It is often used as a proxy for the broad UK stock market.
The S&P 500
The S&P 500 tracks 500 of the largest US-listed companies, selected and weighted by a committee-based methodology based primarily on market capitalisation. It represents a large share of total US stock market value and, by extension, a substantial share of total global stock market value.
Sector composition differences
One of the most significant practical differences between the two indices lies in their sector make-up. The FTSE All-Share has historically carried a larger weighting towards sectors such as financials, energy, and consumer staples, while the S&P 500 has carried a substantially larger weighting towards technology and other growth-oriented sectors. These sector differences mean the two indices can behave quite differently depending on which parts of the global economy are performing well at a given time.
Historical performance context — without predicting the future
Over various historical periods, the S&P 500 and the FTSE All-Share have each gone through extended periods of outperforming the other, often correlating with which sectors (technology versus more traditional industries) were in favour, and with movements in the sterling-dollar exchange rate for UK investors holding unhedged US exposure. It is not possible to know in advance which market will outperform over any future period, and past performance of either index does not predict future results.
The case for a "home bias"
Some UK investors deliberately hold a larger allocation to UK equities than the UK market's share of total global market value would suggest, often for reasons including:
- Familiarity with UK-listed companies and the domestic economy.
- A preference for dividend income, given the FTSE All-Share's historically higher aggregate dividend yield compared with the S&P 500.
- Avoiding currency conversion costs and, for some, currency risk relative to future spending needs in sterling.
- A view that UK equities have, at times, appeared relatively inexpensive compared with US equities on certain valuation measures.
The case for global diversification
Other investors, and much of the academic literature on diversification, point towards holding a globally diversified portfolio rather than concentrating heavily in the home market, for reasons including:
- The UK represents a relatively small proportion of total global stock market value, meaning a UK-only or UK-heavy portfolio misses exposure to a large share of the world's listed companies and economic growth.
- Diversifying across many countries and sectors can reduce the impact of any single country's economic or political challenges on overall portfolio performance.
- Concentration in any single sector-heavy market (whether the FTSE's tilt towards financials and energy, or the S&P 500's tilt towards technology) increases sensitivity to that sector's specific fortunes.
Comparing the two indices directly
| Feature | FTSE All-Share | S&P 500 |
|---|---|---|
| Market covered | UK-listed companies (all sizes) | 500 large US-listed companies |
| Approximate sector tilt | Financials, energy, consumer staples historically prominent | Technology and growth sectors historically prominent |
| Currency | Sterling-denominated companies | US dollar-denominated companies (currency risk for UK investors unless hedged) |
| Share of global market value | A relatively small single-digit percentage | A substantial share of total global market value |
| Common role in a UK portfolio | Domestic allocation, sometimes for income and familiarity | Part of a broader global or US allocation |
A blended, globally diversified approach
Rather than choosing exclusively between the two, many investors use broad global index funds — tracking an index such as the MSCI World or a similar global benchmark — which already include exposure to both UK and US companies (among many other countries) in proportion to their share of global market value, alongside, in some cases, a smaller additional allocation to UK equities specifically for reasons of income, familiarity, or currency considerations. This is presented here as one educational framing of how some investors approach the decision, not a personal recommendation.
A worked example: two hypothetical allocations
Suppose two hypothetical investors each have £50,000 to allocate between UK and US/global equities. Investor A allocates 60% to a FTSE All-Share tracker and 40% to an S&P 500 tracker, reflecting a preference for domestic familiarity and income. Investor B instead allocates the full £50,000 to a global tracker fund following the MSCI World Index, which itself might hold, for illustration, roughly 4% in UK companies and around 65-70% in US companies (weights vary over time as market values change), alongside meaningful exposure to Japan, continental Europe, and other developed markets. Over any given period, these two portfolios could produce quite different returns, purely due to their different country and sector weightings — Investor A's larger UK weighting is a deliberate departure from global market-cap proportions, while Investor B's allocation mirrors those proportions more closely. Neither approach is presented as superior; the example illustrates how differently two seemingly reasonable allocations can be constructed. Figures are illustrative and change over time as market values shift.
Practical considerations
- Consider currency exposure — an unhedged S&P 500 holding carries dollar exposure, which will add to or subtract from sterling returns depending on exchange rate movements.
- Consider income needs — the FTSE All-Share has historically offered a higher aggregate dividend yield than the S&P 500, which may matter more to investors seeking income.
- Consider using a global tracker as a simpler way to gain diversified exposure across many countries, including both the UK and US, in a single fund.
- Review sector concentration in any single-country index before assuming it provides full diversification.
Valuation differences between the two markets
Over much of the past decade, US equities as represented by the S&P 500 have generally traded at higher valuation multiples (such as price-to-earnings ratios) than UK equities as represented by the FTSE All-Share, partly reflecting the higher weighting towards faster-growing technology companies in the US index, and partly reflecting broader investor sentiment towards each market. Some investors interpret a persistent valuation gap as a signal that one market may offer better relative value, while others caution that such gaps can persist, or widen further, for extended periods without necessarily reversing, and that valuation differences often reflect genuine differences in the underlying companies' growth prospects and profitability rather than a straightforward mispricing.
Considering total return, not just price movements
When comparing historical performance between the two indices, it is worth considering "total return" — share price movements combined with dividends reinvested — rather than price movements alone, since the FTSE All-Share has historically had a notably higher dividend yield than the S&P 500, meaning a comparison based purely on price appreciation would understate the FTSE All-Share's total historical return relative to the S&P 500, and vice versa for periods where the S&P 500's price appreciation was particularly strong. Fund factsheets and index provider data typically state clearly whether a quoted figure is a price return or a total return.
How each index has been affected by index concentration trends
In recent years, the S&P 500 has seen an increasing share of its total value concentrated in a relatively small number of very large technology-related companies, a trend that has drawn attention from commentators questioning how diversified a market-cap weighted S&P 500 tracker really is in practice, despite holding 500 underlying companies. The FTSE All-Share, while less concentrated in a handful of names, carries its own concentration considerations, with certain sectors such as banking, energy, and consumer staples historically representing a substantial combined share of the index. Both patterns are worth being aware of when assessing how genuinely diversified either index-based investment actually is.
Currency hedging as a middle-ground option
For investors drawn to the S&P 500's growth characteristics but wary of dollar currency exposure, a currency-hedged S&P 500 tracker offers a middle path, aiming to capture the underlying US market's return while reducing the effect of sterling-dollar exchange rate movements, at the cost of a slightly higher ongoing charge. This is one further option, alongside the broader choice between a home-biased and globally diversified approach, worth being aware of when constructing a portfolio that includes significant US exposure.
Reviewing allocation periodically rather than fixing it permanently
Whatever balance an investor chooses between UK and US or global exposure, market movements will naturally shift the actual proportions over time as one market outperforms another, meaning a portfolio's true allocation can drift meaningfully from its original target without any deliberate new investment decisions being made. Periodically reviewing and, where appropriate, rebalancing back towards a chosen target allocation is a normal part of maintaining a diversified portfolio over the long term, regardless of which specific balance between UK and global exposure was originally chosen.
Key takeaways
- The FTSE All-Share and S&P 500 represent very different economies, sector weightings, and currency exposures.
- Historical periods of outperformance have alternated between the two markets, and future performance cannot be predicted from past patterns.
- Some investors maintain a UK "home bias" for income, familiarity, or currency reasons; others prefer globally diversified exposure reflecting each country's share of world market value.
- Global index funds, such as those tracking the MSCI World, already combine UK, US, and other developed market exposure in a single fund.
- Considering currency exposure and sector concentration is a useful part of comparing single-country index options.