The FTSE 250 hit a 52-week low in October, losing 12% in three months. And in 2023, it’s fallen behind the FTSE 100.
Could that reverse in 2024? I think it might.
Smaller companies can show a fair bit more volatility than bigger ones. But over the long term, we see an interesting thing.
The past decade has been a financially tough one, and the two indexes are pretty much neck and neck.
20 years and more
But look back over 20 years, and things are very different. Over that time, the FTSE 100 is up 80%. But the FTSE 250 has gained 200%. The mid-cap index has trebled.
And over 30 years, the gap widens even more. FTSE 100 stocks have put on 133% in three decades. But FTSE 250 stocks are up 380%.
After the founding of the two indexes in 1984, they remained close to each other’s performance until 2003. And then the FTSE 250 kicked up a gear and raced ahead.
It did suffer a few bigger falls, hitting the skids harder in the banking crisis. And we saw a bigger drop in the pandemic. But the overall winner is clear, by miles.
Risk vs returns
Investors often say that if we want better returns, we need to take more risk. This seems to bear it out. And, I’m not sure the extra risk is all that onerous really. At least, not for seriously long-term investors.
But what makes me think these smaller stocks could race ahead again in 2024?
Well, it is partly history. The last couple of times the FTSE 250 fell behind, it came back to soar past the FTSE 100. It climbed out of the early Covid crash a lot stronger.
The same happened after the banking crash in 2008. In the next three years, the FTSE 250’s gains more than doubled those of the FTSE 100.
What about the future?
The past, of course, might not be a good guide to the future. But there’s one thing that I think could make a difference in 2024.
Financial stocks make up around 18% of the FTSE 100 by market cap. But they count for more than 40% of the FTSE 250.
Right now, that sector is in the dumps. But City analysts expect financial stocks to lead the way in earnings growth in 2024, and they’re heading up the dividends table.
End of the gloom?
So when the financial gloom finally lifts, might that trigger the next spell of FTSE 250 outperformance?
I really don’t know, and this is all just a bit of speculation anyway. And I wouldn’t try to time index performances. I’ll stick to what I’ve always done, and that’s to buy individual stocks on an individual basis, if I think they’re good value.
But I do like to hold investment trusts too. And this does make me think about checking out some that focus on FTSE 250 stocks. To hold for the long term, of course.
