The FTSE 250 & Companies – Performance Vs 100 In Recent Years

In the land of stocks and shares, the gleaming allure of blue-chip companies often overshadows the robust performance of their smaller counterparts. However, for those seeking exposure to the UK market, the FTSE 250 might just present a compelling alternative to the more globally-focused FTSE 100.

In recent years, the FTSE 100 Index has shown an unremarkable performance, particularly in comparison to the high-flying US indices, or the mega cap technology stocks such as Apple, Microsoft, and Nvidia. This lag is emblematic of a broader perception that the UK market is somewhat resistant to innovation – a view bolstered by the decision of ARM Holdings, a crown jewel in the UK tech sector, to list in New York rather than London.

The valuation multiple on earnings is simply higher for US listings than those taking place in London, or elsewhere for that matter.

Considering the FTSE100 vs 250, there has been only a marginal difference in performance over the past 12 months. The FTSE 250 Index, which leans heavily towards the domestic UK economy, has outperformed the FTSE 100 by 0.3%. Offering a blend of attractive value and growth prospects, the mid-cap index, despite a marginally lower dividend yield compared to its larger sibling, presents an appealing investment option.

The UK economy which experienced a minor contraction of 0.1% in the first quarter, is poised for recovery with forecasts suggesting a growth resurgence of 0.8% in 2024. This optimistic outlook is supported by the anticipation of falling interest rates and a recovery in real household incomes.

The Bank of England has projected that inflation will stabilize around the 2% target, and the UK's political stability is increasingly regarded as an asset for the continuity of economic policy. Such stability enhances the attractiveness of UK shares, but also those with an international reach. The last week has seen the 100 outperform the 250 off the back of the central bank decisions and outlook, with a 2.63% gain over 1.08%.

Diving into the constituents of the FTSE 250, one finds companies with strong growth potential, like Games Workshop, or easyJet. These firms reflect the dynamism of the UK's diverse economic sectors, many of which have the ability to generate impressive shareholder returns over the long term.

The FTSE 250 companies are an intriguing proposition for investors who seek diversified exposure to the UK economy, particularly in a context where traditional heavyweights have underperformed.

From a value perspective, the US counterparts such as the Russell 2000 have added more than 18% over the preceding 12 months, and almost 35% when looking back 5 years. During the same period, the FTSE 250 has increased by 6.4% (12 months), and a mere 3.17% (5 years), whilst the FTSE 100 has added 6.15% (12 months) and 8.95% (5 years).

The disparity over 5 years is something to look at deeper particularly as far as the FTSE100 vs FTSE250. That could be construed as an underperformance of the constituents, a sentiment imbalance between local and international economic strength, or potentially an indicator that there may be more value under the hood as the economic situation improves.

As the UK grapples with economic challenges, the FTSE 250 offers a microcosm of potential growth, reflective of the agility and entrepreneurial spirit that remains innate within the UK's mid-sized businesses. Whether the FTSE 250 can deliver performance in a shifting economic landscape remains to be seen, but for now, it offers a vibrant alternative.