The FTSE 100 and FTSE 250 are both down since the start of the year. Yet, study the performance of the FTSE 100 and it becomes clear that the UK’s largest share index has performed a lot better than its cousin.
So, why has the FTSE 250 fallen by more than the FTSE 100 so far this year? Let’s take a look.
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FTSE 100 and FTSE 250: what’s the difference?
The FTSE 100 consists of the largest 100 companies in the UK listed on the London Stock Exchange (LSE). The combined value of its ‘blue chip’ members stands at roughly £1.92 trillion.
The FTSE 250, meanwhile, comprises the 101st-350th largest companies listed on the LSE. Despite having 150 more companies in the index, the combined value of its members stands at £419 billion.
Importantly, the FTSE 100 has more of a global presence than the 250. That’s because roughly 70% of revenue among members comes from overseas. The FTSE 250, on the other hand, is more UK-focused. It is for this reason that many economists prefer to study the FTSE 250 index to get a better picture of the health of the UK economy.
How have the share indexes performed in 2022?
As of the time of writing on Thursday 17 March, the FTSE 250 has fallen 12.3% since the turn of the year. In contrast, the FTSE 100 has fallen just 2.7% over the same period.
So, while both indexes have slumped since January, the FTSE 250 has clearly suffered a lot more. If you take a look at a performance chart for the FTSE 250 and put it beside one for the FTSE 100, you may not immediately notice why the indexes have experienced such contrasting fortunes.
For example, both fell in late January, late February and again at the beginning of March. Yet take a closer look and you’ll see that, in general, whenever the stock market has fallen this year, the 250 has suffered bigger falls.
For example, when the stock market fell between 20 and 24 January, the value of the FTSE 250 went from 22,714 to 21,452 in the space of four days. That’s a drop of 5.5%. The FTSE 100 also fell over the same period from 7,585 to 7,292. This was a fall of 3.79%
It’s was a similar story at the beginning of this month. Between 2 and 4 March, the FTSE 100 dropped from 7,429 to 6,987, which was a 5.94% drop. Meanwhile, the FTSE 250 went from 20,775 to 19,387 over the same period. This represents a fall of 6.68%.
So, to put it another way, while both indexes have plummeted at similar times throughout the year, the FTSE 250 falls have been more substantial.
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Why has the FTSE 250 fallen more than the FTSE 100?
Due to inflation worries and the ongoing war in Ukraine, 2022 has so far been a bad year for the UK economy and the world economy. Therefore, we perhaps shouldn’t be too surprised that the FTSE 250 has suffered more than the FTSE 100.
This is because the FTSE 100 index generally consists of established companies. The FTSE 250, however, typically consists of companies that are ‘up and coming’, with potential for big growth. As a result, its value is typically more volatile.
With this in mind, during uncertain times, the FTSE 100 often performs better than the FTSE 250. In boom times, however, the FTSE 250 can often boast higher returns. So far in 2022, we have seen uncertainty rather than boom.
How can you invest in UK share indexes?
While the beginning of 2022 has been tough for the stock market, better times may be on the horizon. Better than expected job figures already sent the FTSE 100 and FTSE 250 indexes soaring on Wednesday 16 March.
It’s also entirely possible there’s more good news to come in the future. Recent reports have speculated that a ceasefire in Ukraine may just be around the corner. Meanwhile, the Bank of England has suggested that rising inflation will begin to slow later in the year.
So, if you’re positive about the future, you may wish to invest in the FTSE 100 or FTSE 250. To do this you essentially have two options.
You can either buy stock in individual members of the FTSE 100 or FTSE 250. Alternatively, if you’d rather put your faith in the combined performance of members, then you can buy an exchange-traded fund (ETF) that tracks the value of an index.
To pursue either of these options, you’ll have to find a suitable investing platform. Hargreaves Lansdown is a popular choice and one of the Motley Fool’s top picks due to its low fees. However, do check out our full list of top-rated share dealing accounts so you can compare options.
As with any investing, always bear in mind that your portfolio can rise and fall.
Are you new to investing? If so, do take the time to read our investing basics guide. It gives the lowdown on what you need to know about investing and can help you avoid common mistakes.
