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Why I’m investing in FTSE 250 stocks in 2021

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The FTSE 250 index is up almost 2% on average in February compared to January. The FTSE 100 index, on the other hand, is down around 1.5% over the month.

I think there is a reason for this. 

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Why has the FTSE 250 index performed better?

The brakes just came off the UK economy.

The FTSE 250 index’s constituent companies tend to be far more UK focused than FTSE 100 companies, which are likely to be large multinationals. 

A Brexit solution was finally found at the end of last year after years of limbo. With greater clarity on the regulatory environment in the post-Brexit world, businesses can plan better and even project their outlook more confidently. 

While there are still operational challenges underway, and a deal still has not been struck on financial services, there is no denying that progress has been made. 

This adds to the financial markets’ buoyancy seen since news of vaccine development first broke in November. The FTSE 250 index has risen over 18% since October, compared to a 13% increase for the FTSE 100 index. 

More good news for the FTSE 250

I think there is more to come. 

The announcement of the phased end to the UK lockdown earlier this week can guide the FTSE 250’s movements in the coming days. On the other hand the FTSE 100 index is expected to be guided more by how the corona-crisis is being resolved globally. 

Many FTSE 250 stocks would make a good investment I believe. Including the following two. 

#1. Bellway: Promising 2021

The FTSE 250 home-builder Bellway was confident of its outlook for the year in its latest trading update earlier this month. It said that it has a “sizeable forward order book”

Despite the pandemic, the property market has held itself up, with government support. The potential latest extension of the stamp duty holiday is another positive in this regard. It sets real estate companies like Bellway for at least half of 2021. 

As the economy starts picking up post-lockdown, there may be some softening as the real impact of the corona crisis plays out. But it will be partly mitigated by a strong first half. 

#2. SIG: Renovation is back

Another FTSE 250 stock I like is the building products distributor SIG, which expects to bounce back soon. The company suffered in the first half of 2020 because of the pandemic. 

But things have been getting better for it recently. In early January, it released a positive trading update where it talked about a strong recovery in the second half of 2020. Investors noted this, making it the biggest FTSE 250 gainer that day. 

Much like Bellway, SIG will benefit from both the end to the lockdown and the extension of the stamp duty holiday. That makes it a stock I’d consider buying. 

There are risks to investing here, of course. The lockdown-lift may not go as planned. The economy may not come back smartly post lockdowns. And we actually be in for a prolonged slowdown. 

But all of this is in the realm of conjecture. Both anecdotal evidence and projections suggest otherwise. I am hopeful.

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Manika Premsingh 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.