Which should I buy, the FTSE 250 or the FTSE 100?

Both the mid-cap FTSE 250 and the blue-chip FTSE 100 have lagged far behind the US stock market in recent years. But which would I buy today?

| More on:

Image source: Getty Images

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.

The UK’s two biggest stock-market indices are the FTSE 100 and FTSE 250, valued at £2trn and £325bn, respectively. Within our family portfolio, my wife and I own 15 Footsie shareholdings and five FTSE 250 stakes. But which of these two would I buy today?

Battle of the indices

I’ll review the performance of both and then their relative merits. Here’s their performance over five timescales:

PeriodFTSE 100*FTSE 250*Difference*
One month2.9%2.8%0.1%
2024 so far2.6%0.2%2.4%
Six months4.0%7.1%-3.1%
One year5.8%5.3%0.4%
Five years9.0%3.2%5.8%
* These returns exclude dividends.

The larger index has beaten the smaller over four periods, but the FTSE 250 wins over six months. Overall, there’s not much to separate the two of late, but these figures do exclude the returns from cash dividends.

Notably, both have trailed far behind the US S&P 500 index, which has surged by 32.6% over one year and 84.7% over five years.

What about fundamentals (and dividends)?

Right now, the large-cap index boasts a dividend yield of almost 4% a year, while its mid-cap rival offers a yearly cash yield of roughly 3.4%. Thus, the large index offers higher passive income for investors.

Furthermore, the bigger index trades on a multiple of 11.8 times earnings, delivering an earnings yield of 8.5% a year. These figures for the mid-cap index are 12.1 and 8.3%, respectively.

Therefore, these London market measures are trading at broadly similar levels. However, it’s important to note that both are valued at large discounts to other major stock markets, both in historical and geographical terms.

Therefore, with little to differentiate between the two, I’d probably buy both, rather than one or the other. I could do this by buying into a low-cost FTSE 350 tracker fund or similar, taking advantage of attractively priced UK stocks across the board.

I like this FTSE 250 stock

Alternatively, instead of buying into a market index or two, I could pick and choose my own stocks. For example, I’m positive on the shares of ITV (LSE: ITV). Founded in 1955, ITV is Britain’s biggest commercial terrestrial broadcaster.

Unfortunately, old-school linear television is falling out of favour with younger generations, leading advertisers to cut back their spending on TV ads. This has led to falling revenues and earnings at the Love Island broadcaster.

Then again, the group has two go-go growth divisions under its wing: producing content for other media outlets globally, plus fast-growing streaming service ITVX. Good news: growth is strong in these and other digital divisions.

ITV shares haven’t done too well in recent years. Its stock is down 14.1% over one year and 45.4% over five years. Last month, the share price plunged to a 52-week low (on 28 February) of 54.94p, before rebounding.

Now at 71.06p, this FTSE 250 firm is valued at £2.9bn, while its stock offers a chunky dividend yield exceeding 7% a year. Even if the group’s revenues, earnings and cash flow are lower this year than in 2023, I suspect this payout will be held.

Hence, my wife and I will hold on tightly to our ITV holding, bought at 68.7p a share!

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.

Cliff D’Arcy has an economic interest in ITV shares. The Motley Fool UK has recommended ITV. 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

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »