vvfusi or vmid..?

bowlhead99

DireEmblem said:

Is there an equal weighted FTSE all share out there just as a thought?

No

aroominyork

Can I offer you an S&P equal weight, XDWE? I wonder if there is a market for a FTSE100 or, especially, a FTSE250 equal weight? 

Another_Saver

bowlhead99 said:

Another_Saver said:

And don't forget kids...
2.9% capital concentration since inception 🥳

Whatever it's done since inception, the top ten constituents of the FTSE250 now make up about 10% of its market cap (spread about a percent each) while the top ten of the All-Share take a much bigger portion of that index with first place in the All-Share being almost 3x the weighting of 10th place. So although the All-Share has more stocks, it's arguably less 'diversified' in terms of concentrating the risk and reward into a few key stocks despite having exposure to a larger number of them. So my vote would be for the 250 as a long term investment, especially given OP's likely to have reasonable exposure to large multinational oil and gas giants, big pharma and banks etc within his global trackers.

/
Sorry I wasn't being clear I meant capital concentration as opposed to dilution. Since inception (1992 not 1985) the FTSE 250 index has grown by 2.9% pa more than its market cap, whereas the norm for develped markets has been for rights issues and IPOs to dilute existing holdings, and thus returns, by about 2% pa (since 1985 the 100's capital dilution has been 2.36%, very similar to the S&P500s 2.3%).
 If we assume the efficienct market hypothesis a priori, we could expect a continued period of outperformance for that reason. This is not sustainable indefinitely, but I think the 250 is sufficiently small, attractive and good at finding replacements for acquisitions that it's got a few decades left in it (though 2.9% + 2.36% outperformance seems a tad unrealistic).

C_Mababejive

Thanks all,well as a holder of CTY i guess i already have managed exposure to many high value FTSE100 companies so maybe i need to redeploy the money in my VVFUSI but then maybe the experts over at CTY have already seen the light and got in on the ground floor of the potential recovery so there would be no point in me trying to time it and buy VMID.

Another_Saver

C_Mababejive said:

Thanks all,well as a holder of CTY i guess i already have managed exposure to many high value FTSE100 companies so maybe i need to redeploy the money in my VVFUSI but then maybe the experts over at CTY have already seen the light and got in on the ground floor of the potential recovery so there would be no point in me trying to time it and buy VMID.

The FTSE all share is likely to almost duplicate CTY because both are very similar to the FTSE 100, little point buying both.
The current valuations for the FTSE 250 are fine so it's hardly a bad time to buy and it diversifoes from CTY a fair bit.

bowlhead99

Another_Saver said:

bowlhead99 said:

Another_Saver said:

And don't forget kids...
2.9% capital concentration since inception 🥳

Whatever it's done since inception, the top ten constituents of the FTSE250 now make up about 10% of its market cap (spread about a percent each) while the top ten of the All-Share take a much bigger portion of that index with first place in the All-Share being almost 3x the weighting of 10th place. So although the All-Share has more stocks, it's arguably less 'diversified' in terms of concentrating the risk and reward into a few key stocks despite having exposure to a larger number of them. So my vote would be for the 250 as a long term investment, especially given OP's likely to have reasonable exposure to large multinational oil and gas giants, big pharma and banks etc within his global trackers.

/
Sorry I wasn't being clear I meant capital concentration as opposed to dilution. Since inception (1992 not 1985) the FTSE 250 index has grown by 2.9% pa more than its market cap, whereas the norm for develped markets has been for rights issues and IPOs to dilute existing holdings, and thus returns, by about 2% pa (since 1985 the 100's capital dilution has been 2.36%, very similar to the S&P500s 2.3%).
 If we assume the efficienct market hypothesis a priori, we could expect a continued period of outperformance for that reason. This is not sustainable indefinitely, but I think the 250 is sufficiently small, attractive and good at finding replacements for acquisitions that it's got a few decades left in it (though 2.9% + 2.36% outperformance seems a tad unrealistic).

Are you saying that in the FTSE100 the returns for an investor in the index have been diluted (weakened) by the fact that an IPO or additional share issue occurred? It's true that the market cap of the companies held by the index will increase faster than the index value if new money comes in (a company issues more shares or a  large new company IPOs, kicking a smaller constituent out), but that doesn't hold back the index investors' returns. 

For example, say I invest £1000 in an index when it is at a value of 10,000 and there is £100 billion of share value across the constituents. A massive new company joins at the September reshuffle and is £4bn bigger than the company it replaces, and perhaps a few companies do fundraisings for an aggregate £1.2bn of new shares issued, so there is now £105.2bn of market cap in the index.  The index figure doesn't need to change from 10,000 as there has been no 'performance' from those events.

My £1000 in the original £100bn of market cap is now only covering 95% of the index value (100/105.2) and if the fund manager took no action I would not have any exposure to the new company and would be underweight in the companies that issued new shares while being relatively overweight in the others that I originally held. However, the index data provider will change the relative weights attributed to each constituent to reflect the new market capitalisation weightings. At the same time, my index tracker fund provider buys into the new company, sells the demoted company, puts extra money into the companies that issued new shares and pays for it by selling proportionately out of the other shares.  I am rebalanced to the new weights.

The index is still at 10,000 and my £1000 is now fairly exposed to the whole £105.2bn of market constituents. As a result, I only have 95% as much money in most of the old companies because I have more in the new IPO company and a more in the ones that fundraised and made themselves bigger.  So my exposure to those old companies have been diluted in favour of the newer or enlarged companies, but the performance I get from the portfolio is not fundamentally weakened, and I don't lose anything - my portfolio is simply reallocated to fairly reflect the current weights.  I haven't 'lost out', just because the market cap of the index constituents went up a few percent more than the index went up at the point the newco was admitted or the companies issued shares without the index value going up. 

Over the next year, if every company in the newly updated index increases in value with a weighted average share price return of 10%, the index goes up from 10,000 to 11,000 and my investment goes up from £1000 to £1100.  

If the new company hadn't performed as well as the old ones which get 10%, I would get less than 10% return, while if it performed better I would get more. If it performs the same I get the same. But the index is correctly doing its job of tracking the growth or contraction of the index constituents' value, and I am taking an exposure to the change in their values. If new money comes into the index constituents (new share issue or IPO) the weightings will change as my allocation is spread differently, but the addition of that new money is not 'performance' so I wouldn't expect to get anything out of it, and nor would I lose anything. 

The effect is the same as if I am invested in any open-ended fund and you come along and subscribe to a new unit in that fund that I'm in.   You put another £1000 in, so I am 'diluted' (my percentage ownership of the fund has reduced) but the performance of the fund shouldn't change from having you aboard, and I am not going to complain at the end of the year that my percentage return from the fund is less than the percentage increase in the fund's total assets under management.

Likewise then, if the FTSE is at 6000 and suddenly goes up from £1.8 trillion to £1.9 tn as a result of a £104bn IPO displacing a £4bn company from the bottom of the index, the FTSE will still be at 6000 and the investors will still have all their money and not gained or lost anything from that process. If by the end of the year the FTSE grows to £2.0 tn from the £1.9 tn it will be about 5% up at ~6300, but I won't look at it and say I should have been 11% up (i.e. 1.8 -> 2.0). The 5% is the fair score.  

So, the FTSE100 or S&P 'diluting' over time due to new share issues is not costing the investors anything or dragging their performance. Likewise if the opposite effect is seen in the FTSE250 (capital concentration as you call it, when market cap reduces relative to performance), this is not causing the performance to improve, nor to be over-reported. 

As such, I don't see why one should 'expect a continued period of outperformance for that reason'. You're implying that the FTSE 100's addition of weighty constituents and new share issues will weaken its performance or reported performance ('capital dilution') while the FTSE250 reducing market cap (e.g. by releasing companies promoted to the FTSE100) enhances its performance ('capital concentration') and therefore we would see FTSE250 outperform for some technical reason. That doesn't seem right, so perhaps you could explain more if I've fundamentally missed your point.

Alexland

C_Mababejive said:

I gt the AJB shares mag regularly via email and its an interesting read though i dont dabble in individual shares any more.

I must have told them to stop emailing me about Shares magazine but I just logged in to my AJB account and they are still banging on about the same old stuff with a UK bias trying to encourage you to place trades, use expensive managed funds, and think about things that are unnecessary for most people's personal investment objectives. Life is just too short for Shares magazine. Still there's always worse while the Motely Fool is still pumping greater volumes of internet clutter.

Another_Saver

bowlhead99 said:

Another_Saver said:

bowlhead99 said:

Another_Saver said:

And don't forget kids...
2.9% capital concentration since inception 🥳

Whatever it's done since inception, the top ten constituents of the FTSE250 now make up about 10% of its market cap (spread about a percent each) while the top ten of the All-Share take a much bigger portion of that index with first place in the All-Share being almost 3x the weighting of 10th place. So although the All-Share has more stocks, it's arguably less 'diversified' in terms of concentrating the risk and reward into a few key stocks despite having exposure to a larger number of them. So my vote would be for the 250 as a long term investment, especially given OP's likely to have reasonable exposure to large multinational oil and gas giants, big pharma and banks etc within his global trackers.

/
Sorry I wasn't being clear I meant capital concentration as opposed to dilution. Since inception (1992 not 1985) the FTSE 250 index has grown by 2.9% pa more than its market cap, whereas the norm for develped markets has been for rights issues and IPOs to dilute existing holdings, and thus returns, by about 2% pa (since 1985 the 100's capital dilution has been 2.36%, very similar to the S&P500s 2.3%).
 If we assume the efficienct market hypothesis a priori, we could expect a continued period of outperformance for that reason. This is not sustainable indefinitely, but I think the 250 is sufficiently small, attractive and good at finding replacements for acquisitions that it's got a few decades left in it (though 2.9% + 2.36% outperformance seems a tad unrealistic).

Are you saying that in the FTSE100 the returns for an investor in the index have been diluted (weakened) by the fact that an IPO or additional share issue occurred? It's true that the market cap of the companies held by the index will increase faster than the index value if new money comes in (a company issues more shares or a  large new company IPOs, kicking a smaller constituent out), but that doesn't hold back the index investors' returns. 

For example, say I invest £1000 in an index when it is at a value of 10,000 and there is £100 billion of share value across the constituents. A massive new company joins at the September reshuffle and is £4bn bigger than the company it replaces, and perhaps a few companies do fundraisings for an aggregate £1.2bn of new shares issued, so there is now £105.2bn of market cap in the index.  The index figure doesn't need to change from 10,000 as there has been no 'performance' from those events.

My £1000 in the original £100bn of market cap is now only covering 95% of the index value (100/105.2) and if the fund manager took no action I would not have any exposure to the new company and would be underweight in the companies that issued new shares while being relatively overweight in the others that I originally held. However, the index data provider will change the relative weights attributed to each constituent to reflect the new market capitalisation weightings. At the same time, my index tracker fund provider buys into the new company, sells the demoted company, puts extra money into the companies that issued new shares and pays for it by selling proportionately out of the other shares.  I am rebalanced to the new weights.

The index is still at 10,000 and my £1000 is now fairly exposed to the whole £105.2bn of market constituents. As a result, I only have 95% as much money in most of the old companies because I have more in the new IPO company and a more in the ones that fundraised and made themselves bigger.  So my exposure to those old companies have been diluted in favour of the newer or enlarged companies, but the performance I get from the portfolio is not fundamentally weakened, and I don't lose anything - my portfolio is simply reallocated to fairly reflect the current weights.  I haven't 'lost out', just because the market cap of the index constituents went up a few percent more than the index went up at the point the newco was admitted or the companies issued shares without the index value going up. 

Over the next year, if every company in the newly updated index increases in value with a weighted average share price return of 10%, the index goes up from 10,000 to 11,000 and my investment goes up from £1000 to £1100.  

If the new company hadn't performed as well as the old ones which get 10%, I would get less than 10% return, while if it performed better I would get more. If it performs the same I get the same. But the index is correctly doing its job of tracking the growth or contraction of the index constituents' value, and I am taking an exposure to the change in their values. If new money comes into the index constituents (new share issue or IPO) the weightings will change as my allocation is spread differently, but the addition of that new money is not 'performance' so I wouldn't expect to get anything out of it, and nor would I lose anything. 

The effect is the same as if I am invested in any open-ended fund and you come along and subscribe to a new unit in that fund that I'm in.   You put another £1000 in, so I am 'diluted' (my percentage ownership of the fund has reduced) but the performance of the fund shouldn't change from having you aboard, and I am not going to complain at the end of the year that my percentage return from the fund is less than the percentage increase in the fund's total assets under management.

Likewise then, if the FTSE is at 6000 and suddenly goes up from £1.8 trillion to £1.9 tn as a result of a £104bn IPO displacing a £4bn company from the bottom of the index, the FTSE will still be at 6000 and the investors will still have all their money and not gained or lost anything from that process. If by the end of the year the FTSE grows to £2.0 tn from the £1.9 tn it will be about 5% up at ~6300, but I won't look at it and say I should have been 11% up (i.e. 1.8 -> 2.0). The 5% is the fair score.  

So, the FTSE100 or S&P 'diluting' over time due to new share issues is not costing the investors anything or dragging their performance. Likewise if the opposite effect is seen in the FTSE250 (capital concentration as you call it, when market cap reduces relative to performance), this is not causing the performance to improve, nor to be over-reported. 

As such, I don't see why one should 'expect a continued period of outperformance for that reason'. You're implying that the FTSE 100's addition of weighty constituents and new share issues will weaken its performance or reported performance ('capital dilution') while the FTSE250 reducing market cap (e.g. by releasing companies promoted to the FTSE100) enhances its performance ('capital concentration') and therefore we would see FTSE250 outperform for some technical reason. That doesn't seem right, so perhaps you could explain more if I've fundamentally missed your point.

I am getting a bit academic for a simple post asking opinions about the FTSE 250.

Firstly, we need to accept that aggregate corporate earnings growth cannot indefinitely exceed nominal GDP growth, and so nominal GDP growth must act as a cap on corporate earnings growth. We must also accept that a developed stock market's market capitalisation cannot get out of whack with that economy's GDP or amount of wealth. This is complicated by globalisation, foreign ownership and ownership of foreign assets, currency movements, and fixed indices such as the FTSE 100 and S&P 500 changing at the bottom unlike total stock market indices (which still change but don't have a "floor" at which they swap stocks with the next index down). I have yet to find good research or data on these effects.

However, even over long periods of time, speculation (change in the price/earnings multiple), changes in the size of the market relative to GDP, changes in the portion of profits funnelled off by management, more/less efficient markets (tighter spreads improve the investor's lot, at the expense of small commissions to high frequency traders and market-makers) can all distort this rule.

For example, the S&P 500s PE has soarded from ~10 in the mid 1980s to ~35 today, corporate profits as a % of GDP have doubled from 4%-8%, while management pay has increased well above that of the ordinary worker. Since inception, the FTSE 100's 2.36% capital dilution has been cancelled out by a coincidentally equivalent expansion of the FTSE 100's market cap relative to GDP hence the index's 5% capital growth is identical to nominal GDP growth over that period (I calculated this using year end figures, before Corona, but you can work out for yourself the same trend continuing, the index is already down 1.8% vs the market cap from 31/12/19-30/9/20).

On aggregate, dilution of 2% a year means existing stockholder's share of earnings and dividends shrinks by 2% pa. This is necessarily true for total stock markets (at a country or global level). Your argument has been used by compensation committees to argue that stock options are "free". Sources:

tandfonline . com/doi/abs/10.2469/faj.v66.n1.5

site . warrington . ufl . edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf

researchaffiliates . com/documents/FAJ-2003-Two-Percent-Dilution.pdf

(unable to post links, hence the spaces)

My argument is that over finite periods, certain small corners of the market can experience less capital dilution, or even in the case of the FTSE 250, capital concentration. The profits from net acquisitions of FTSE 250 companies - that were not necessarily re-invested into other FTSE 250 companies as a FTSE 250index fund would do - have increased shareholder's return over the index's market cap growth by 2.9% annualised since inception. This fully explains the 250's record of outperformance over the 100.

My next point is pure opinion, and I admit I am getting into speculating about the future and the continuation of a necessarily finite phenomena. Given how small and attractive the 250 is (opinion), I do not see the phenomena running out anytime soon and believe it has a few decades left in it (opinion). Even if it starts to wear off, there is a wide gulf to go between +2.9% capital concentration, and -2.36% capital dilution (more opinion).

Another_Saver

aroominyork said:

Can I offer you an S&P equal weight, XDWE? I wonder if there is a market for a FTSE100 or, especially, a FTSE250 equal weight? 

/

XFEW - but the performance is still almost identical to the FTSE 100 and the fees are higher than the chapest plain FTSE 100 index funds or ETFs. Perhaps the idea that an equally weighted FTSE 100 would be suprerior is already priced in with lower valuations at the top and higher valuations at the bottom?

Another_Saver

Another_Saver said:

bowlhead99 said:

Another_Saver said:

bowlhead99 said:

Another_Saver said:

And don't forget kids...
2.9% capital concentration since inception 🥳

Whatever it's done since inception, the top ten constituents of the FTSE250 now make up about 10% of its market cap (spread about a percent each) while the top ten of the All-Share take a much bigger portion of that index with first place in the All-Share being almost 3x the weighting of 10th place. So although the All-Share has more stocks, it's arguably less 'diversified' in terms of concentrating the risk and reward into a few key stocks despite having exposure to a larger number of them. So my vote would be for the 250 as a long term investment, especially given OP's likely to have reasonable exposure to large multinational oil and gas giants, big pharma and banks etc within his global trackers.

/
Sorry I wasn't being clear I meant capital concentration as opposed to dilution. Since inception (1992 not 1985) the FTSE 250 index has grown by 2.9% pa more than its market cap, whereas the norm for develped markets has been for rights issues and IPOs to dilute existing holdings, and thus returns, by about 2% pa (since 1985 the 100's capital dilution has been 2.36%, very similar to the S&P500s 2.3%).
 If we assume the efficienct market hypothesis a priori, we could expect a continued period of outperformance for that reason. This is not sustainable indefinitely, but I think the 250 is sufficiently small, attractive and good at finding replacements for acquisitions that it's got a few decades left in it (though 2.9% + 2.36% outperformance seems a tad unrealistic).

Are you saying that in the FTSE100 the returns for an investor in the index have been diluted (weakened) by the fact that an IPO or additional share issue occurred? It's true that the market cap of the companies held by the index will increase faster than the index value if new money comes in (a company issues more shares or a  large new company IPOs, kicking a smaller constituent out), but that doesn't hold back the index investors' returns. 

For example, say I invest £1000 in an index when it is at a value of 10,000 and there is £100 billion of share value across the constituents. A massive new company joins at the September reshuffle and is £4bn bigger than the company it replaces, and perhaps a few companies do fundraisings for an aggregate £1.2bn of new shares issued, so there is now £105.2bn of market cap in the index.  The index figure doesn't need to change from 10,000 as there has been no 'performance' from those events.

My £1000 in the original £100bn of market cap is now only covering 95% of the index value (100/105.2) and if the fund manager took no action I would not have any exposure to the new company and would be underweight in the companies that issued new shares while being relatively overweight in the others that I originally held. However, the index data provider will change the relative weights attributed to each constituent to reflect the new market capitalisation weightings. At the same time, my index tracker fund provider buys into the new company, sells the demoted company, puts extra money into the companies that issued new shares and pays for it by selling proportionately out of the other shares.  I am rebalanced to the new weights.

The index is still at 10,000 and my £1000 is now fairly exposed to the whole £105.2bn of market constituents. As a result, I only have 95% as much money in most of the old companies because I have more in the new IPO company and a more in the ones that fundraised and made themselves bigger.  So my exposure to those old companies have been diluted in favour of the newer or enlarged companies, but the performance I get from the portfolio is not fundamentally weakened, and I don't lose anything - my portfolio is simply reallocated to fairly reflect the current weights.  I haven't 'lost out', just because the market cap of the index constituents went up a few percent more than the index went up at the point the newco was admitted or the companies issued shares without the index value going up. 

Over the next year, if every company in the newly updated index increases in value with a weighted average share price return of 10%, the index goes up from 10,000 to 11,000 and my investment goes up from £1000 to £1100.  

If the new company hadn't performed as well as the old ones which get 10%, I would get less than 10% return, while if it performed better I would get more. If it performs the same I get the same. But the index is correctly doing its job of tracking the growth or contraction of the index constituents' value, and I am taking an exposure to the change in their values. If new money comes into the index constituents (new share issue or IPO) the weightings will change as my allocation is spread differently, but the addition of that new money is not 'performance' so I wouldn't expect to get anything out of it, and nor would I lose anything. 

The effect is the same as if I am invested in any open-ended fund and you come along and subscribe to a new unit in that fund that I'm in.   You put another £1000 in, so I am 'diluted' (my percentage ownership of the fund has reduced) but the performance of the fund shouldn't change from having you aboard, and I am not going to complain at the end of the year that my percentage return from the fund is less than the percentage increase in the fund's total assets under management.

Likewise then, if the FTSE is at 6000 and suddenly goes up from £1.8 trillion to £1.9 tn as a result of a £104bn IPO displacing a £4bn company from the bottom of the index, the FTSE will still be at 6000 and the investors will still have all their money and not gained or lost anything from that process. If by the end of the year the FTSE grows to £2.0 tn from the £1.9 tn it will be about 5% up at ~6300, but I won't look at it and say I should have been 11% up (i.e. 1.8 -> 2.0). The 5% is the fair score.  

So, the FTSE100 or S&P 'diluting' over time due to new share issues is not costing the investors anything or dragging their performance. Likewise if the opposite effect is seen in the FTSE250 (capital concentration as you call it, when market cap reduces relative to performance), this is not causing the performance to improve, nor to be over-reported. 

As such, I don't see why one should 'expect a continued period of outperformance for that reason'. You're implying that the FTSE 100's addition of weighty constituents and new share issues will weaken its performance or reported performance ('capital dilution') while the FTSE250 reducing market cap (e.g. by releasing companies promoted to the FTSE100) enhances its performance ('capital concentration') and therefore we would see FTSE250 outperform for some technical reason. That doesn't seem right, so perhaps you could explain more if I've fundamentally missed your point.

I am getting a bit academic for a simple post asking opinions about the FTSE 250.

Firstly, we need to accept that aggregate corporate earnings growth cannot indefinitely exceed nominal GDP growth, and so nominal GDP growth must act as a cap on corporate earnings growth. We must also accept that a developed stock market's market capitalisation cannot get out of whack with that economy's GDP or amount of wealth. This is complicated by globalisation, foreign ownership and ownership of foreign assets, currency movements, and fixed indices such as the FTSE 100 and S&P 500 changing at the bottom unlike total stock market indices (which still change but don't have a "floor" at which they swap stocks with the next index down). I have yet to find good research or data on these effects.

However, even over long periods of time, speculation (change in the price/earnings multiple), changes in the size of the market relative to GDP, changes in the portion of profits funnelled off by management, more/less efficient markets (tighter spreads improve the investor's lot, at the expense of small commissions to high frequency traders and market-makers) can all distort this rule.

For example, the S&P 500s PE has soarded from ~10 in the mid 1980s to ~35 today, corporate profits as a % of GDP have doubled from 4%-8%, while management pay has increased well above that of the ordinary worker. Since inception, the FTSE 100's 2.36% capital dilution has been cancelled out by a coincidentally equivalent expansion of the FTSE 100's market cap relative to GDP hence the index's 5% capital growth is identical to nominal GDP growth over that period (I calculated this using year end figures, before Corona, but you can work out for yourself the same trend continuing, the index is already down 1.8% vs the market cap from 31/12/19-30/9/20).

On aggregate, dilution of 2% a year means existing stockholder's share of earnings and dividends shrinks by 2% pa. This is necessarily true for total stock markets (at a country or global level). Your argument has been used by compensation committees to argue that stock options are "free". Sources:

tandfonline . com/doi/abs/10.2469/faj.v66.n1.5

site . warrington . ufl . edu/ritter/files/2015/04/Economic-growth-and-equity-returns-2005.pdf

researchaffiliates . com/documents/FAJ-2003-Two-Percent-Dilution.pdf

(unable to post links, hence the spaces)

My argument is that over finite periods, certain small corners of the market can experience less capital dilution, or even in the case of the FTSE 250, capital concentration. The profits from net acquisitions of FTSE 250 companies - that were not necessarily re-invested into other FTSE 250 companies as a FTSE 250index fund would do - have increased shareholder's return over the index's market cap growth by 2.9% annualised since inception. This fully explains the 250's record of outperformance over the 100.

My next point is pure opinion, and I admit I am getting into speculating about the future and the continuation of a necessarily finite phenomena. Given how small and attractive the 250 is (opinion), I do not see the phenomena running out anytime soon and believe it has a few decades left in it (opinion). Even if it starts to wear off, there is a wide gulf to go between +2.9% capital concentration, and -2.36% capital dilution (more opinion).

Say instead of using a valuation method of generating reasonable future return expectations as Ritter suggests, you instead use Bogle's earnings growth + dividend yield method, and assume the UK/FTSE 250 can generate 2% real earnings growth, the 250 continues to attract about 3% of capital concentration and averages a 3% dividend yield, you end up expecting an 8% real total return which seems a bit too high, but that is what this index has achieved so far. Perhaps some downwards derating (expectations of acquisitions could already be priced in to some stocks, but taking a company private still requires a premium over the public markets), shrinking relative to GDP, the effects of a growing concentration of investment trusts, UK capital flight, end of the UK's safe haven status, running out of acquisition targets or some other unknown unknowns will come into play. Acquisition prices could also deprive the index of the minority of stocks that generate most of the growth - if you believe bidders are better than average stock pickers, which I don't. Also, Capital concentration has been slowing in recent years, which could be a cyclical dip or a secular wearing off.