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.

READ  As the RSA share price dips further in the stock market crash, I’d buy

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.

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.

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

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

READ  Ted Baker says 38% of global retail sales hit by coronavirus

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Please enter your comment!
Please enter your name here