Last week investors received a welcome boost as Britain’s FTSE 250 reached a new all-time high, boosting many Isas, pensions and other investment portfolios.
The high-performing index comprises the 250 biggest companies listed in London, after those on the larger FTSE 100. Following a rollercoaster year, the index now finds itself 3 per cent higher than its pre-Covid record – set just after the 2019 general election.
Unlike the multinational dominated FTSE 100, the FTSE 250 is regarded as more representative of the UK economy, making the news of its success particularly welcome.
Bounce back: Following a rollercoaster year, the FTSE250 index now finds itself 3 per cent higher than its pre-Covid record – set just after the 2019 general election
Its performance suggests the markets have high hopes for Britain’s economic fight back, and the end of lockdowns for good.
Which shares are driving the bounce back, will the recovery boost your portfolio and how can you grab some of that success for your Isa or other investments? We take a look and get some investing ideas.
The UK-focussed stock market index that’s on a roll
The FTSE 250 has been on a roll of late, gaining 8 per cent since markets re-opened in January.
The index isn’t short on strong performers, with more than 100 of its members growing by more than 10 per cent in that time.
The biggest winners this year include Cineworld (up 60 per cent), virtual bingo titan Gamesys (up 60 per cent) and services company Mitie (up 55 per cent).
It’s all a long way from last year, when the FTSE 250 suffered a stomach-turning 37 per cent loss during the Covid crash.
With a larger share of customer-facing businesses than the FTSE 100, the index looked set for a tough year — and many investors were braced for the worst.
While the FTSE 250 enjoyed a modest recovery in the spring, it was the news of the successful vaccine trials that finally changed its fortunes.
Four months later, and with Britain’s Covid cases down 96 per cent since January, the index is finally pushing into positive gains.
It suggests that markets can finally see an end to the Covid nightmare — even if ministers don’t always seem to share their confidence.
With UK households sitting on an estimated £180 billion of lockdown savings, investors will be hoping that a summer spending splurge will propel the FTSE to new highs. If they’re right, it could lead to the FTSE 250’s strongest year on record.
Tread carefully when picking shares
With a diverse spread of sectors, the FTSE 250 has long been popular with both retail investors and fund managers.
‘The attraction of investing in medium-sized companies is plain to see in the long-term performance figures,’ says Laith Khalaf of investment platform AJ Bell.
‘They are small enough that they still have room to grow, but large enough that they are established businesses with existing customer bases.’
Before choosing any stock, it’s essential to do your research. Even companies you think you know well can turn out to have a very different business model.
Delivering: In 2019 Royal Mail was one of the FTSE’s least-loved stocks, with a 60% drop in value in a year. Two years on it is a ‘must have’ stock, with a 246% rise in one year
Look at Royal Mail, which, back in the spring 2019, had become one of the FTSE’s least-loved stocks, with a 60 per cent drop in value in a year.
Yet the company was championed by influential fund managers who pointed to its growing continental trade as evidence that the market’s pessimism was undue.
Two years on and Royal Mail has become one of the FTSE 250’s ‘must have’ stocks, with a 246 per cent rise in one year.
However, it’s important to remember that a stock’s short-term performance is not the best indicator of future growth.
Many of the fastest risers this year are the same companies that were hit hardest by the Covid crash.
They may have risen sharply in recent months, but from a very low baseline and not always without difficulty.
Take Cineworld, which teetered close to bankruptcy at the height of the Covid crisis.
Speculation about a Chinese takeover offer has revived its share price in recent months, but analysts remain wary of its large corporate debts.
The UK-focused funds and trusts that could profit
Investors looking for funds that focus on the UK to ride the recovery may find themselves spoilt for choice.
The relatively weak performance of FTSE stocks in recent years has fuelled a rise in funds hunting for British bargains.
Temple Bar Investment Trust, one of the first funds to back Royal Mail, is a well-known proponent of value investing.
As is Nick Train, the fund manager who currently runs the Finsbury Growth & Income Trust.
Interestingly, both trusts are also backing companies from the struggling FTSE 100, whose low valuations have been called ‘ridiculous’ by Train.
The trusts’ five-year records are very different, with a £10,000 investment now worth £11,400 with Temple Bar, and £15,000 with Finsbury.
Temple Bar has accelerated rapidly in recent months, with many hoping the trust can return to its glory days of the early 2010s.
Mr Khalaf, meanwhile, picks Franklin UK Mid Cap, which holds a concentrated portfolio of 30 to 40 medium-sized companies.
Larger holdings include manufacturer Bodycote and housebuilder Redrow.
A £10,000 investment five years ago would now be worth £15,600.
He also suggests the Vanguard FTSE 250 ETF as a cheaper option for investors looking to gain exposure to the wider market.
As an index tracker, the fund mirrors the composition of the FTSE 250 itself, meaning that investors’ money grows in line with the overall index.
If markets keep pushing towards record highs, it could be a valuable addition to any portfolio.
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