2 FTSE 250 stocks I’d buy if I had to start from scratch with £5k

Rupert Hargreaves highlights the two FTSE 250 companies he would buy for his portfolio if he had to start with just £5,000.

| More on:

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.

If I had to start from scratch as an investor today with a lump sum of £5,000, I think there are plenty of options available for me to invest my money, especially in the FTSE 250

Now we are past the worst of the pandemic, and the turbulence of Brexit is moving into the rearview mirror, I think the outlook for the UK economy is encouraging. 

The domestic index

The FTSE 250 tends to be a more representative index of the domestic economy. More than two-thirds of FTSE 100 profits are generated outside the country, making this index more of a barometer of global economic health than UK economic performance. 

As most of the FTSE 100’s profits are also generated outside of the UK, the index tends to be heavily influenced by the pound. A weaker pound could help produce higher profits for the index’s constituents. 

Meanwhile, company and economic fundamentals tend to have a more significant impact on the FTSE 250. 

As such, here are my two favourite companies in the UK-focused index. I would buy both of these stocks for my starter portfolio if I had to begin with an investment of just £5,000 today. 

FTSE 250 stocks

The first company on my list is a financial services champion.

Liontrust Asset Management (LSE: LIO) has grown rapidly over the past five years. Revenues have increased from around £50m in 2017 to £175m in 2021. 

The organisation’s formula is simple. It draws investors to its offering by constructing funds that outperform the market. For example, the firm’s oldest fund, the Liontrust UK Smaller Companies Fund, launched in January 1998, has consistently ranked in the best performing 25% of UK funds since its launch 24 years ago.

The company’s second oldest offering, the Liontrust Balanced Fund, has achieved a similar performance. 

These numbers explain why investors are happy to entrust their money to the company. It does not look as if this trend will come to an end anytime soon. Net inflows over the three months to 31 December 2021 were £832m. The net inflows over the nine months to 31 December 2021 were £2.9bn. 

These numbers put the company on a par with the UK’s largest online stockbroker, Hargreaves Lansdown

Bumps in the road 

Still, past performance should never be used to guide future potential. Liontrust’s performance has helped attract investors over the past two-and-a-half decades, but a couple of missteps could destroy this track record. In this scenario, the company may find itself having to offer customers expensive incentives to stay on board. 

Another challenge the business could face is competition. The asset management sector is incredibly competitive. Liontrust needs to keep investing in its offering, or the firm could be left behind. 

Even after taking these challenges into account, I would make this FTSE 250 company a cornerstone of my starter portfolio. As assets under management continue to grow, I expect the firm’s profits to follow suit. 

FTSE 250 gold play

I always like to include some exposure to the gold mining industry in my portfolio. I tend to stay away from investing in gold directly because I would rather own shares in a company producing cash flow that can return some of this money to investors with dividends. 

That is why I would also acquire FTSE 250 gold mining company Centamin (LSE: CEY) for my starter portfolio. 

This Egypt-focused gold miner is incredibly well run, in my opinion. Over the past five years, the group has managed its operations efficiently while expanding production, keeping costs low, and maintaining a solid balance sheet. 

On top of these qualities, Centamin has also become a dividend champion. In the past, the stock has consistently supported dividend yields in the high single digits. And of course, these cash distributions are supported by the company’s strong balance sheet, which is stuffed full of cash and gold bullion. 

Growing output

According to the firm’s latest production report, the group is currently profiting from rising gold prices. It sold nearly 100,000 oz of the precious metal in the fourth quarter of 2021, at an average price of $1,828/oz. That is compared to the full-year average of $1,797/oz. 

Costs have also increased modestly, is although rising gold prices are offsetting some of this group. The cash cost of production per ounce was $972 in the fourth quarter compared to the full-year average of $859. 

These figures illustrate the company’s defensive nature. The cost of production is rising due to inflation. However, the price of gold has been an excellent hedge against inflation pressures for much of the past century. This suggests that the enterprise is one of the best FTSE 250 enterprises to own in the current economic environment. 

That being said, Centamin is not wholly immune to economic and political challenges. It has faced challenges in the past operating with the Egyptian government. Further, there is no guarantee the price of gold will continue to reflect inflation. If gold prices stagnate and costs continue to increase, the company’s profit margins will come under pressure. 

Income champion

Still, even after taking these headwinds into account, I am encouraged by the FTSE 250 company’s potential over the next couple of years. It is looking to hike gold output by more than 10% in 2022. Increasing sales and profits will help the business fund its exploration activities as it looks to diversify away from its core projects. 

City analysts believe the corporation can pay out a dividend yield equivalent to 6.2% of its current share price for the current financial year. Even though that is a decline of 43% on 2020 levels, it still makes this company a desirable income prospect.

As such, I believe this enterprise would make the perfect addition alongside Liontrust to my £5k FTSE 250 starter portfolio. 

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 considered so you should consider taking independent financial advice.

Rupert Hargreaves 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

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

How I’d invest in UK dividend stocks to generate passive income for retirement

How I plan use the iShares UK dividend fund to invest in high-yield stocks in the UK to generate passive…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

GSK shares plummet 15% in a week! What’s going on here?

GSK shares had a bad time last week. They're down 15% as investors' sentiment soured ahead of litigation proceedings in…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Stock market recovery: have all the bubbles now burst?

Asset bubbles keep on coming, and here's what I'm doing to navigate through them and invest for the stock market…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

How I’d invest £290 a month in UK shares for a passive income that beats the State Pension

UK shares can offer a lucrative path for passive income. Our writer considers a plan to double his State Pension.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 of the best shares to buy now with £2,000

I reckon the best shares to buy now have strong growth in earnings and recent good news flow, such as…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m aiming for £500 a month in income from dividend stocks 

Here's my three-step plan for achieving a growing income from dividend stocks and three companies I'd use to help execute…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

UK shares are cheap! So why is Warren Buffett ignoring them and should you too?

Many British shares are trading cheaply and pay dividends. This is normally the hunting ground for Warren Buffett, yet he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’ve increased my passive income by 600%

Finding the right opportunities can bring spectacular results. Here’s how our author has managed to increase his monthly passive income…

Read more »