FTSE 100 and FTSE 250 investors! Are you investing for value or growth?

Do you know if your stock portfolio is overexposed to FTSE 100 (INDEXFTSE:UKX) and FTSE 250 (INDEXFTSE:MCX) value or growth stocks?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Value and growth are two of the main styles in stock market investing. Today I’d like to discuss these two approaches as well as several UK-listed shares so that you can make more informed investment decisions.

Value vs growth 

Warren Buffett is regarded as one of the best investment managers in the world. An investor who put £1,000 into his US-based financial services company Berkshire Hathaway 50 years ago would now have over £9m. He has been a life-long believer in the long-term value-based investing style. 

Value investors aim to pay a low price for a company relative to the value they receive. And to find a stock’s real value, one has to look beyond the price. Mr Buffett is interested in undervalued companies that make money and generate ample cash.

Why invest in value? Value investors believe that sooner or later, markets will appreciate a given firm’s intrinsic value, leading to an increase in share price. 

On the other side of the coin is growth investing. Such investors aim to find businesses that are likely to grow faster (either by revenue, cash flow, or most importantly profit) than the rest.

Most growth companies do not offer dividends as management reinvests earnings in the business to expand operations.

Why invest in growth companies? Their attraction is the potential sizeable upside in the stock price. As a result, stock price movements of these companies tend to be rather volatile.   

FTSE 100

The FTSE 100 consists of the top 100 UK-listed stocks with the biggest market capitalisations. Most FTSE 100 companies are multinational conglomerates and up to three-quarters of their revenues comes from overseas. As one of the highest-yielding markets in the world, the FTSE 100 currently has a generous dividend yield of 4.5%. 

Whenever I look for value, I usually start with the FTSE 100 and screen for companies whose share price may be suffering for what I estimate to be a temporary period.

Most of the shares in the index also declare regular dividends. Even if the share price doesn’t appreciate fast, I rest assured that I’d benefit from dividend payments.

The two companies I’m watching right now are insurer and asset manager Aviva as well as advertising and PR giant WPP. Their respective forward P/E ratios are 7.4 and 10.2. Given the respective dividend yields of 6.9% and 4.3%, both companies may possibly deserve to be on the shopping list of value investors.

FTSE 250 

Companies in the FTSE 250 index have a more domestic focus yet smaller market caps than their FTSE 100 counterparts.

I believe investors can find both value and growth in the index.

Indeed if you were to look at graphs of the performance of a FTSE 100 vs FTSE 250 tracker over the past two decades, you would possibly be highly impressed with the compound annualised growth rate (CAGR) of the FTSE 250.

My Motley Fool colleague Alan Oscroft concludes that “if you’re looking for growth, you should invest in smaller companies”.

As I get ready to look beyond the general election in December, the three FTSE 250 companies I’m currently doing due diligence on are high street bakery Greggs, recruitment specialist Hays and ingredients firm Tate & Lyle.

On a final note, if you’re unsure about which investing style may suit your needs, you may want to talk to a financial adviser first before moving forward with a specific type of investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

tezcang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »