The FTSE 250 doesn’t get as much attention compared to the FTSE 100. But the UK’s leading growth index houses some terrific market-beating stocks. And since its inception, the index has actually outperformed its older sibling by quite a wide margin at an 11% average annualised gain versus 8%. However, in more recent years, the FTSE 250’s performance has been a bit underwhelming.
Investors have reaped a total return of 42.1% in the last half-decade – a compounded average rate of just 7.3% a year. At this slower rate, anyone who invested £10,000 back in June 2020 is now sitting on £14,210.
That’s certainly nothing to scoff at. But over the same period, the FTSE 100 was up by 73.8%, or 11.7% a year. That means the same £10,000 investment would now be worth closer to £17,380.
What’s behind this underperformance, and what does the future hold?
FTSE 250 vs FTSE 100
There are a lot of complex factors at play when analysing the performance of the largest 100 companies against the largest 101st to 350th businesses. But one of the biggest reasons driving the relative underperformance of small- and mid-cap stocks is their increased sensitivity to domestic economic conditions.
It’s no secret that the UK economy hasn’t exactly been a stellar performer since the pandemic. A combination of rising living costs, Brexit-related uncertainty, and low growth hasn’t created an optimum environment for smaller businesses to thrive.
However today, the situation seems to be steadily improving. Inflation’s slowly falling along with interest rates, while GDP grew meaningfully by 0.7% in the first quarter of 2025. So could this spark some new optimism among investors?
Some institutional analysts certainly seem to think so. Several have commented on the seemingly large valuation gap between the UK’s two flagship indices. And if economic growth can be sustained, a stronger appetite for cyclical value stocks could steer the index back into growth mode.
Looking at winners
While the index as a whole has been a bit disappointing, the same can’t be said for some of its constituents. For example, Premier Foods (LSE:PFD) has been on a pretty phenomenal run over the last five years, climbing by almost 290%. And when accounting for the extra gains from dividends, anyone who bought £10,000 worth of shares back in June 2020 now has a whopping £39,820!
It seems despite the economic pressures, households are still willing to pay up for the company’s premium brands, such as Paxo, Bisto, Mr Kipling, and Sharwood’s, among others. And with management divesting its lower-margin non-core assets to focus on its top performers, revenue, profits, cash flow, and dividends have all been on an upward trajectory – a trend that analysts anticipate will continue moving forward.
However, that doesn’t mean this FTSE 250 is a guaranteed winner. Being a food producer, Premier Foods is highly sensitive to external input costs for both raw ingredients as well as energy. At the same time, consumer tastes are constantly shifting. And with many becoming increasingly health conscious, the firm’s brand relevance could suffer if management isn’t able to innovate.
Nevertheless, given the company’s impressive track record, Premiere Foods is worth closer inspection, in my opinion.
