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I am a big fan of investing in FTSE 250.This is the UK mid-sized company index that ranks below the FTSE 100 in size.
Around a third of my personal portfolio is invested in FTSE 250 shares, and here's why.
While many of the FTSE 100 companies are global leaders with attractive dividends, many of them also take a while to grow.
In contrast, the FTSE 250 is home to a much broader mix of companies that are (generally) proven and successful, but still small enough to generate significant growth.
A purchasing opportunity?
Over the last 20 years, the FTSE 250 has risen a healthy 185%. Over the same period, the FTSE 100 has gained just 66%. That's without dividends. Although the FTSE 100 tends to offer higher performance, it is not enough to override the better long-term performance of the FTSE 250.
After a small drop in 2022 and 2023, the FTSE 250 has taken off again in the last 12 months. The index is up 12% since November 2023. This means a £20,000 investment in the FTSE 250 a year ago would be worth £22,400 today, plus dividends.
The good news is that the index's recovery has been driven by strong gains in many FTSE 250 companies.
The FTSE 250's price-to-earnings (P/E) ratio of 15 and dividend yield of 3.4% still don't look expensive to me. I can see long-term value right now by simply investing in the index. I would probably do this through a cheap tracking fund like the Vanguard FTSE 250 UCITS ETF.
However, as an active investor, my goal is always to beat the market. I can't do that with an index tracker, which will only match the market.
For this reason, I have been looking for stocks to consider buying on the FTSE 250. Here is a stock that I think is worth investigating further at the moment.
Cheap and defensive?
We could reduce the consumption of sweets when we visit the supermarket. But how often do we reduce spending on our pets?
Pets at home (LSE: PETS) has a notable 24% share of the UK pet care market. The company's business model includes online operations, pet superstores, and in-store grooming and veterinary services.
This comprehensive approach helps build customer loyalty. In fact, the Pets loyalty program has 8 million active members, who benefit from personalized offers and discounts.
One possible risk is an ongoing competition investigation in the UK veterinary sector. This could end up hurting the profitability of large veterinary chains like Pets at Home. However, I suppose the group's hypermarket approach can make it easier to adapt to any changes that are necessary.
The Pets at Home share price is down around 40% from the 500p highs seen during the pet pandemic boom. This slowdown has left the stock trading with a forecast P/E for 2024/25 of 13, with a dividend yield of 4.8%.
I think the stock is worth considering as a long-term buy today. At this time I do not have any vacancies in my personal portfolio. But the next time I'm in a position to buy, Pets at Home will be on my short list to investigate further.
