The FTSE 250 index is more reliant on the UK and reflective of British business than its counterpart, the FTSE 100.
The FTSE 100, also known as the ‘Footsie’, mostly contains very large businesses with an international presence. It’s the index traditionally thought to be safest for long-term investors. However, the FTSE 250 contains some attractive companies too.
What are the FTSE indices?
If you didn’t already know, the FTSE 100 is an index compiled of the top 100 companies on the London Stock Exchange, by market capitalisation.
The FTSE 250 contains the next 250 companies by market cap. Together the two indices make up the FTSE 350.
FTSE stands for Financial Times Stock Exchange, as the Financial Times and the London Stock Exchange originally owned it.
Some familiar companies on the FTSE 250 include Cineworld, Royal Mail, Travis Perkins, and William Hill.
Are FTSE 250 shares a risky buy?
At the moment, the global pandemic is wreaking havoc on share prices everywhere. This stock market volatility makes it seem a risky place to invest, and many companies look like they’re in serious financial trouble.
This doesn’t mean all FTSE 250 shares are a risky buy.
During a market crash, every FTSE index stock suffers when large-scale sell-offs occur across the board.
However, when the tide turns and the indices rise again, significant gains can be made. Going by historical FTSE returns, they’ve proven this time and again as they’ve reached new highs after market crashes.
The best of British retail
Sectors you’ll find on the FTSE 250 include housebuilders, insurers, pub owners, and specialist retailers such as Pets at Home and Games Workshop. Among them are some top-quality companies with a bright future ahead.
One of my favourites is Tate & Lyle, the manufacturer of sugar alternatives. Tate has a 4% dividend yield and a price-to-earnings ratio of 17. I think it offers value for money and manufacturers specialist ingredients that are still in demand.
I also like real estate investment trust (REIT) Primary Health Properties. When REITs are suffering from retail closures and the effects of the coronavirus pandemic on the economy, this one looks good. The Primary Health Properties portfolio contains close to 500 properties. It rents these purpose-built assets to medical establishments such as doctor surgeries, pharmacies, and government healthcare facilities.
Investing in the stock market is a great way to create future wealth generation, but it’s not something to take lightly. Randomly buying shares without thought and consideration is akin to gambling and unlikely to end well.
You can reap long-term financial rewards by buying undervalued companies. I think the FTSE 250 contains some quality companies and it could be a great time for stock market beginners to get started investing. A market crash can give you the perfect opportunity to buy undervalued shares in winning businesses.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.