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Why I’d buy the FTSE 250 to profit from the stock market rebound

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The FTSE 250’s recent crash was swiftly followed by a stock market rebound. However, despite this performance, the index is still down around 26% year-to-date. Some of the FTSE 250’s constituents have still not benefited from the stock market rebound.

With that being the case, the FTSE 250 could offer recovery potential for long-term investors buying today.

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Stock market rebound

The stock market rebound has caught many investors by surprise. News regarding the coronavirus crisis has started to improve over the past few weeks. But it doesn’t look as if the crisis is anywhere near its end.

Unfortunately, the situation may remain challenging in terms of the number of new cases and deaths over the next few months. However, the economy has started to adapt to the new normal.

Sectors such as travel & leisure and retail are experiencing a significant amount of disruption. Profitability across these industries is unlikely to return to historical levels anytime soon.

Nonetheless, while these sectors are struggling, others are seeing rising levels of demand. The technology sector, for example, is experiencing something of a new dawn. This is because companies are being forced to change their working practices as consumers are stuck at home. The sector is leading the stock market rebound as a result. 

Picking winners

While are some companies may come out of the crisis stronger than they went in, others may not survive. Picking winners is a challenging process at the best of times. The current situation will only make the process harder. The stock market rebound might have lifted some shares, but there’s no guaranty this will continue. 

Still, the track record of the FTSE 250 has been mostly strong. Over periods of 10 to 20 years, the index has always produced a positive return for investors. As such, evidence points to the conclusion that buying a range of companies when they trade on low valuations has historically been a successful way to play any stock market rebound.

Buying the whole FTSE 250 index might be the best way to achieve this aim.

Spreading risk

It might take some time for the market and economy to fully recover. However, buying the whole FTSE 250 index will spread risks within your portfolio.

Fortunately for investors, the cost of diversification has fallen in recent years. Low-cost index tracker funds could be the best way to participate in the stock market rebound without having to pick stocks.

Many providers offer FTSE 250 tracker funds with costs below 0.5% per annum. Commission and dealing costs have also fallen significantly over the past few years with online stock brokers shaking up the industry.

These low-cost products could help you profit from the stock market rebound, and participate in the FTSE 250’s long-term growth without having to do any extra work yourself.

So, if you’re looking for a way to profit from the stock market rebound, and build a strong portfolio to last for the long term, buying the FTSE 250 could be the best option.

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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