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Chart of the Week: Vanguard U.K. 100/250 Spread at Widest since 1986

Author: Tim Sharp

Researcher: Jack Williams

Published: January 18, 2023

Through 2022, a period of global instability, uncertainty and constant investment landscape changes, the U.K.’s blue chip index shown below (Vanguard FTSE100 ETF)  has been the best performing developed index of the year. Thanks to the structure of the constituents within the index, following rises in energy prices, sterling slipping against the dollar, and even throughout the Trussenomics debacle, UK blue chip investors have seen positive returns of +3.76% (1Y) compared with the UK 250’s less impressive return of -15.47% (1Y)

U.K 100 ETF’s have enjoyed strong earnings from Oil, Gas and Mining companies along with weakness in sterling fuelling gains, while the UK’s Vanguard FTSE250 ETF with higher sensitivity to the U.K economy has shed almost a fifth of its value through 2022 and now sees the largest price disparity compared to its blue-chip counterpart since 1986. Shell and BP, both Vanguard FTSE100 ETF constituents, have reported some of their most profitable periods in their company’s history, BP recently doubled its earnings to $8Bn and Shell beat its all-time profit record set in 2008 of $31Bn.

As rates continue to rise, investors seem hesitant to onboard risk assets, seeking bulletproof earnings and expandable markets as they search for some safety in this uncertain period. While UK100 ETFs continue to climb, just 77 points from the index’s all-time highs, UK250 ETFs continue to be unloved by investors. With inflation and borrowing costs affecting the appeal of risky assets, UK250 ETFs appears somewhat inversely correlated to peak interest rate expectations. After the Government’s disastrous mini budget, rate expectations for 2023 sat near 6%, leaving UK250 ETFs in oversold territory within indicators. With government stability somewhat returning, and rate expectations having somewhat cooled from their highs, investors are questioning whether a potential peak in Gilt yields or Rate expectations could give the index some room to rise. Charted below is the Vanguard FTSE100 ETF and Vanguard FTSE250 ETF comparatively showing the huge spread between the two.

Vanguard FTSE 100 UCITS ETF (GBP)

Vanguard FTSE 250 ETF

Vanguard FTSE 100 ETF GBP (White) Vanguard FTSE250 ETF GBP (Blue)

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