If I’d put £10,000 into the FTSE 250 5 years ago, here’s how much I’d have now!

The FTSE 250 hasn’t done well over the past five years. But by being selective about which of its stocks to buy, I think it’s possible to do better.

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Since October 2019, the FTSE 250 has delivered a return of 16.4%, or 3.1% a year. A £10,000 investment five years ago would be worth £11,640.

But during this period, it’s been volatile. The years of the pandemic (2020) and rampant inflation (2022), saw the index lose 4.6% and 17.4%, respectively.

In contrast to this, in 2019, it increased by 28.9%.

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If I’d bought a tracker fund, I’d have achieved a return identical to these figures. Alternatively, I could have purchased all 250 stocks. But it would have been necessary to put a different amount in each depending on their market cap. That’s because the FTSE 250’s weighted, with the most valuable stocks influencing the overall index more than the smaller ones.

However, although a return of 3.1% is reasonable, it’s not a stellar performance. For example, the FTSE 100‘s increased by an average of 6% a year, since 2019.

And there’s a wide disparity between the winners and losers.

Over the past five years, 110 stocks on the FTSE 250 have fallen in value and 24 have doubled.

Biggest and best?

One FTSE 250 stock that I like the look of is Alliance Witan (LSE:ALW).

In October, it acquired the assets of Witan Investment Trust (WIT). As I write (14 November) it has the largest market cap (£5.09bn) on the index. I think it will be promoted to the FTSE 100 at the next reorganisation.

The trust’s top 20 holdings contains some familiar names — Microsoft, Amazon, Alphabet, Meta Platforms and Nvidia.

But I like the fact that it hasn’t put all of its eggs into the technology/artificial intelligence basket. At 31 October 2024, 78.9% of the fund was invested outside of the sector.

Other large holdings include Visa, UnitedHealth Group and Novo Nordisk.

On the plus side

And now could be a good time for me to invest.

The trust trades at a 4.1% discount to its net asset value. This is similar to a shop having a sale, offering nearly 5% off all its products. I could buy into 236 companies at a discount to their prevailing fair value.

Created with Highcharts 11.4.3Alliance Witan PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I also like the fact that nearly all of the trust’s investments are in listed companies.

Some rivals — like Scottish Mortgage Investment Trust — have a large proportion of unquoted companies in their portfolios. These are harder to value and could potentially distort their valuations.

And although Alliance Witan’s dividend isn’t amazing — the stock’s presently yielding 2.1% — it has increased for an impressive 57 consecutive years. Nothing’s guaranteed when it comes to investing, but I see no reason why this shouldn’t continue.

Prior to being bought, WIT had increased its payout for 49 years in a row.

Reasons to be cautious

But there are potential risks.

The majority of the portfolio is invested in US equities. And although American stocks have done well since the election, if Donald Trump pursues his protectionist policies, inflation is likely to rise and interest rates could stay higher for longer.

Also, the fund manager charges a fee of 0.61%. This is higher than, for example, SMT’s 0.35%.

However, because of Alliance Witan’s wide diversification across many sectors — and its impressive track record of dividend growth — I’m going to put the stock on my watchlist for when I’m next in a position to invest.

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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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Amazon, Meta Platforms, Microsoft, Novo Nordisk, Nvidia, and Visa. 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.

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