FTSE 250 Index And Investing Ideas For The Next Year

  • Dec 24, 2019 GMT
  • Team Kalkine
FTSE 250 Index And Investing Ideas For The Next Year

The FTSE 250 Index is the third most prominent of the FTSE indices maintained by the FTSE Russell company for the London Stock Exchange, after the FTSE All-Share index and the FTSE 100 index. It was launched on 12th October 1992, and the index represents the 101st to 350th largest companies listed on the London Stock Exchange in terms of market capitalisation. Off late it has been gaining importance as being the barometer of the British economy, on account of encompassing the widest number of sectors of the British economy of the LSE main market listed companies,  with the largest sector being the financial sector followed by the industrial sector and the consumer services sector at the second and the third place. The index’ such rise to prominence was consequent to the FTSE 100 taking in more and more multinational companies and becoming more international in flavour. This Index is also known as the midcap stock index and is calculated real time and published every minute from 8.00 am when trading starts on the London Stock Exchange till 4.30 pm in the afternoon when the trading on the exchange stops.

Some of the most prominent names on this mid-tier stock index are Aston martin Plc, Airtel Africa, Apax Global Alpha, Avast Plc, 3i Infrastructure plc, 4imprint Group, Babcock International, Baillie Gifford Japan Trust, Bankers Investment Trust, Balfour Beatty Plc, Barr A.G. Plc, Aberforth Smaller Companies Trust Plc, W H Smith Plc, Virgin Money UK, Templeton Emerging Markets Investment Trust Plc, Sequoia Economic Infrastructure Income fund, perpetual income and Growth investment trust Plc, Henderson Smaller Companies investment trust Plc, HarbourVest global private equity, Fidelity China Special Situations Plc, City of London Investment trust Plc and B&M European Retail Value S.A.

There are several factors that make the Index unique and give the investors a perspective that is distinct from the other indices maintained by the FTSE Russell company. The FTSE 250 index is home to tier two companies listed on the LSE in terms of revenues. These companies are characterised by the twin aspects of being sufficiently significant in size both in terms of revenue and market capitalisation. To be sustainable yet still facing sufficient growth opportunities and to have sufficient capital gains potential, providing the investors with ample value creation potential with a reduced level of risk. The other two indices of FTSE on either side of this Index are the FTSE 100 which has somewhat limited growth potential, yet constituent companies have low-risk profile and on the other end of the spectrum is the FTSE AIM All-Share index which though offers immense capital gain and value creation potential, but also offers significant amount of risk. This index thus offers investment opportunities to the majority of the mid-tier investor classes, who can tolerate risk only to a certain extent and can also part with a limited amount of their current income to channelise into investments.

This index offers some unique investment opportunities at the Break of 2020 when the United Kingdom would be entering into a new era of economic growth post its departure from the European Union. Brexit which since its announcement in 2016 till October 2019 has been a period of political and economic turmoil in the United Kingdom. Capital markets and a host of other leading economic indicators of the British economy have been on a downward spiral since. The FTSE 250 among all other indices was the hardest hit, as most of the larger companies on the larger FTSE 250 index were able to sustain the onslaught on account of their extensive international exposure. In the Post Brexit era also, this Index offers the maximum value creation opportunity as its constituent companies have the high bounce-back potential. The index would also be benefited the most as post Brexit most of the government policies and funding would be directed towards encouraging and expanding the domestic sector with the constituent companies of the Index being the largest beneficiaries. Among the focused sectors of the index that will get special attention will be the engineering goods sector where the government will be putting in maximum of its resources in order to tide over the immense crunch, the industrial sector in United Kingdom would be facing on account of the sudden short supply of these items from other industrially developed countries of the European Union.

Other than giving good capital gain opportunity for a given amount of risk among its FTSE cousins, the FTSE 250 index is also giving good income opportunities as we go into 2020. During the past three years the battering, the constituent companies of this Index have received on account of the different politico-economic headwinds have eroded away a lot of their market value so much so that they are now available at a discounted valuations like never before, while this is a good opportunity for value seekers as it also increase the dividend yield given by companies on this index significantly, there are also many companies on this index who have temporarily halted their dividend payments on account of poor performance during the past couple of years but will be back on their long term dividend pay-out track as soon as the economic situation improves.

In the post Brexit period, the most likely economic situation will be most conducive to support the domestic infrastructure, utilities and consumer goods sectors. Most of the companies in these categories belong to the FTSE 250 index group. The Index currently represents a healthy balance of growth and income with a reduced level of risk and represents the maximum value creation opportunity.  Brexit by separating the United Kingdom from the rest of European Bloc will be giving rise to a number of domestic opportunities to the British businesses, which they will benefit from in short to mid-term period. The focus of government efforts during the post-Brexit period will also be towards promoting domestic production and expanding domestic British economy. All these factors make FTSE 250 index the most favourable investment destination for 2020.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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