I’m a big fan of investing in the FTSE 250.This is the index of mid-sized UK companies that sits below the FTSE 100 in size.
Around one third of my personal portfolio is invested in FTSE 250 shares – and here’s why.
While many of the companies in the FTSE 100 are world leaders with attractive dividends, many of them are also somewhat slow to grow.
In contrast to this, the FTSE 250 is home to a much broader mix of companies that are (usually) proven and successful – but still small enough to deliver significant growth.
A buying opportunity?
Over the last 20 years, the FTSE 250 has risen by a healthy 185%. Over the same period, the FTSE 100 has gained just 66%. That’s without dividends. Although the FTSE 100 tends to offer a higher yield, it’s not enough to cancel out the FTSE 250’s stronger long-term performance.
After a bit of a slump in 2022 and 2023, the FTSE 250 has taken off again over the last 12 months. The index is up by 12% since November 2023. This means that a £20,000 investment in the FTSE 250 one year ago would be worth £22,400 today, plus dividends.
The good news is that the index’s recovery has been driven by strong earnings at many FTSE 250 companies.
The FTSE 250’s price-to-earnings ratio (P/E) of 15 and 3.4% dividend yield still don’t seem expensive to me. I can see long-term value right now in simply investing in the index. I’d probably do this through a cheap tracker fund like the Vanguard FTSE 250 UCITS ETF.
However, as an active investor, my aim is always to beat the market. I can’t do that with an index tracker, which will only ever match the market.
For this reason, I’ve been hunting for stocks to consider buying in the FTSE 250. Here’s one stock I think is worth researching further right now.
Cheap and defensive?
We might cut back on treats when we visit the supermarket. But how often do we cut back on spending on our pets?
Pets at Home (LSE: PETS) boasts a remarkable 24% share of the UK pet care market. The company’s business model includes online operations, pet superstores and in-store vet and grooming services.
This all-encompassing approach helps build customer loyalty. Indeed, Pets’ loyalty scheme has 8m active members, who benefit from personalised offers and discounts.
One possible risk is an ongoing competition investigation into the UK vet sector. This could end up crimping the profitability of large vet chains such as Pets at Home. However, my guess is that the group’s superstore approach may make it easier to adapt to any changes that are required.
Pets at Home’s share price is down by around 40% from the 500p highs seen during the pandemic pet boom. This slowdown has left the stock trading on a 2024/25 forecast P/E of 13, with a 4.8% dividend yield.
I think the stock is worth considering as a long-term buy today. I don’t have a vacant slot in my personal portfolio at the moment. But when I’m next in a position to buy, Pets at Home will be on my shortlist for further research.
