Why missing out on the FTSE 250’s growth potential could be a major mistake in 2019



The has gained almost 10% since the start of 2019. That’s a stunning performance in around eight weeks, which suggests that investors have become more positive about the prospects for the UK economy.

Despite its rise, the 250 continues to offer a relatively high yield, which suggests that it could offer good value for money. With a strong track record and exposure to a variety of economies, it may still offer a sound long-term investment outlook after its recent rise.

UK opportunity
While there remains uncertainty surrounding the prospects for the UK economy, there could also be a long-term buying opportunity on offer. Certainly, things may get worse before they get better when it comes to Brexit. Political risk seems to be increasing every day, with there being a lack of a clear path to either a deal, no deal or another referendum. As such, investors may display a degree of caution, which could impact on the FTSE 250 due to it being largely made up of UK-focused companies.

However, in many cases it appears as though investors have already factored in the possible risks facing the UK economy. A number of mid-cap stocks seem to offer wide margins of safety. This suggests that there could be value investing opportunities on offer for investors who are focused on the long run, rather than the short term.

Track record
Even after the FTSE 250’s recent gain, it continues to offer a relatively high dividend yield. It currently stands at around 3%, which is relatively high for the index compared to its historic level. This indicates that there could be further upside ahead.

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Looking back at the index’s track record of growth, it has been able to generate a near-10% annual total return over the last two decades. That’s a stunning rate of return which is well ahead of the FTSE 100’s return, and provides evidence that smaller companies, albeit mid-caps, can offer faster growth rates than large-cap shares.

Diversity
Although the index generates around three-quarters of its income from within the UK, it still offers a degree of international diversification. This could help investors to access higher rates of growth which may be on offer in a number of economies across the globe. For example, China and India are due to report high levels of GDP growth over the coming years. This could provide a tailwind for a number of FTSE 250 companies.

Timing
While some investors may question whether now is the right time to buy shares in the FTSE 250 after its recent gains, the reality is that predicting short-term price movements can be challenging. For example, after a tough 2018 few investors would have foreseen a 10% rise in the index so far in 2019. Therefore, focusing on the long run could be a better move than considering short-term price movements. On that front, the index seems to offer significant investment appeal.

Motley Fool UK 2019

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