The FTSE 250 has idled for a few years now. That’s likely because companies in this mid-cap index have higher exposure to the UK economy, which has been impacted by lockdowns, high inflation and a cost-of-living crisis, Brexit-related trade challenges, stagnant productivity growth, and now rising taxes.
Many investors are probably turned off by this toxic combination of economic factors, making them hesitant to buy a FTSE 250 index tracker.
2024 returns
Investors who put the full £20,000 annual ISA allowance into a FTSE 250 index tracker at the start of 2024 would be sitting on about £21,500 today (factoring in dividends). That’s roughly a 7.5% total return.
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Normally, that wouldn’t be so bad. After all, the average historical returns from UK stocks as a whole has tended to be around 7%-9%.
However, the Russell 2000 Index, which is made up of smaller US companies of a similar size to those in the FTSE 250, returned around 12% in 2024. So this is a bit disappointing (though hardly surprising).
Opportunities for stock-pickers
Of course, these are just averages. The performances of individual FTSE 250 stocks varied widely, as one would imagine.
For example, one of the worst performers in 2024 was Aston Martin. Shares of the luxury car firm slumped 51%. Since 2018, they’re now down 97%, due to consistent worries about Aston’s ongoing losses and worrying balance sheet situation.
By contrast, Games Workshop shares powered 33% higher across the year, rewarding the Warhammer owner with promotion to the FTSE 100. Over five years, the stock is up 113% (without dividends).
Happily, I’m a Games Workshop shareholder. And it proves that there are fantastic opportunities for stock-pickers in the UK mid-cap index, despite its weak overall performance.
Raspberry Pi
One FTSE 250 share I find very interesting is Raspberry Pi Holdings (LSE: RPI). It’s jumped 93% since the start of November.
The £1.3bn firm makes single-board computers (SBCs), which are affordable, credit card-sized computers built on a single circuit board. Originally designed to teach coding to kids, these devices are now widely used in Internet of Things (IoT) applications and DIY programming projects.
For example, Raspberry Pis can be used to control lights, thermostats, or to automate feeding times for pets. However, they also have industrial AI applications, enabling energy management, automation, and more.
In November, the company announced a partnership with SECO, an Italian IoT specialist. This deal will see SECO make a new human-machine interface solution based on Raspberry Pi’s latest compute module (CM5).
One risk here is that there’s a lot of competition in this space. And after its recent meteoric rise, the stock looks a little bit pricey. It’s trading at 57 times next year’s forecast earnings.
That said, at least the firm has earnings. For a relatively young company still optimised for growth rather than profits, I find this attractive.
In the summer, UK investment bank Peel Hunt wrote this about the company: “Edge computing is set to do to Raspberry Pi what the desktop did to Microsoft, the smartphone did to Apple, and the data centre is doing to Nvidia.”
I’m not ready to invest in Raspberry Pi just yet as it’s still a new public company. But the firm’s potential has me very interested.
