Should you invest in FTSE 100 or FTSE 250 shares?

Summary 

  • FTSE 100 & FTSE 250 contain top 350 firms with the highest market capitalisation
  • The combined market value of all the FTSE 250 companies is GBP410 million
  • Only 5 FTSE 100 stocks have higher market cap than that of 250 firms combined

Investing in stock markets carries a certain amount of risk, the proportion of risk invariably increases as you go further with the volatile securities. Before choosing the stocks to invest, there is a definite inclination and preference for the shares that are included in the benchmark index or the key index of the stock exchange.

For London, the key indices that comprise a major chunk of notable companies are FTSE 100 and FTSE 250. Cumulatively, both of these indices account for more than 350 companies with the highest market capitalisation on the London Stock Exchange.

A large section of the corporations listed in these indices have exposure to the foregin exchange, diversified chain of businesses, and a long list of overseas clients. Big heavyweight shares represent respective sectors including the healthcare, financial services, beverages, consumer discretionary, mining and oil exploration.

 

Also Read | Bargain offer: 3 blue-chip stocks that are down up to 30% in a year

 

There are enterprise-wise differences between FTSE 100 and FTSE 250 as the former contain all the blue-chip shares, while the latter include mid-caps and a few emerging small-cap stocks that have been included in the index following periodic revisions in the index methodology by the indices manager, FTSE Russell.

The combined market capitalisation of all the 250 companies on the FTSE 250 index is approximately GBP410 million. Interestingly, only five of top stocks listed on the FTSE 100 have a higher market cap than that of 250 companies combined.

For instance, the combined market capitalisation of top five large-cap shares on FTSE 100 including Unilever Plc (LON: ULVR), AstraZeneca Plc (LON: AZN), HSBC Holdings Plc (LON: HSBA), Diageo Plc (LON: DGE) and Rio Tinto Plc (LON: RIO) translates into nearly GBP460 million.

But, the bigger organisations don’t guarantee a fruitful and market-beating return as the large businesses have somewhere reached a saturation stage for massive growth. They will, certainly, continue to perform at a nominal rate, and may also be well-equipped to absorb adverse market situations such as the aftermath of Covid-19 and other commercial hardships led by the pandemic.

On the other hand, a group constituted by 250 corporations, possessing diverse sectors will definitely provide better chances to capitalise through various opportunities of multifold gains. But, as the experts say, the proportion of risk will increase partly as you move onto the constituents of FTSE 250.

 

Also Read | FTSE penny stocks: 3 shares below 10p gain up to 250% in 2021

 

Moreover, the mid-cap heavy FTSE 250 contains a heterogeneous mixture of stocks. Within the index, there will be some companies that are looking forward to being included in the prestigious FTSE 100, subsequent to the remarkable performance and a relatively poor performance of some of the FTSE 100 constituents at the lower end of the pack.

While there will also be several companies which are scaring a potential exclusion from the mid-cap index itself, possibly due to lower-than-expected performance of the respective components and the failure to meet the desired specifications for the index following which a company can continue to remain a part of the index.

Identifying an ideal benchmark index for further selection of stocks largely depends on the sectors you’re considering to put money. There will be some stocks that are highly prominent in the FTSE 250 index, whereas FTSE 100 contains, undoubtedly, some of the major shares which can be bought to gain the exposure of the growth story of England’s economy.


Disclaimer
The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Limited (Kalkine Media, we or us) and is available for personal and non-commercial use only. Kalkine Media is not authorised or regulated by the Financial Conduct Authority to provide regulated advice. The purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. The Content is guidance about the different types of investments that are available and sets out general principles to continue before making investment decisions. Kalkine Media is neither authorised nor qualified to provide regulated investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from an appropriately authorised and/or qualified financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.