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He FTSE 250 It hit a 52-week low in October, losing 12% in three months. And in 2023, it has been left behind FTSE 100.
Could that be reversed in 2024? I think it could be.
Smaller companies can show significantly more volatility than larger ones. But in the long term we see something interesting.
The last decade has been financially difficult and the two indices are practically even.
20 years and more
But if we look back twenty years ago, things are very different. During that time, the FTSE 100 has risen 80%. But the FTSE 250 has gained 200%. The mid-cap index has tripled.
And over 30 years, the gap widens even further. FTSE 100 shares have risen 133% in three decades. But FTSE 250 shares are up 380%.
After the two indices were founded in 1984, they stayed close to each other’s performance until 2003. And then the FTSE 250 accelerated and moved on.
It suffered some larger falls, and its slide was more severe during the banking crisis. And we saw a further decline in the pandemic. But the overall winner is clear, by miles.
Risk versus return
Investors often say that if we want better returns, we should take on more risk. This seems to confirm it. And I’m not sure the additional risk is really that onerous. At least not for long-term investors.
But what makes me think these smaller stocks could rally again in 2024?
Well, it’s partly history. The last two times the FTSE 250 lagged, it again outperformed the FTSE 100. It emerged from the initial Covid crisis much stronger.
The same thing happened after the banking crisis of 2008. In the three years that followed, the FTSE 250’s profits more than doubled those of the FTSE 100.
What about the future?
Of course, the past may not be a good guide to the future. But there is one thing that I think could make a difference in 2024.
Financial stocks make up around 18% of the FTSE 100 by market capitalisation. But they represent more than 40% of the FTSE 250.
Right now, that sector is in ruin. But City analysts expect financial stocks to lead earnings growth in 2024, and top the dividend table.
End of darkness?
So, when the financial pessimism finally dissipates, could that trigger the next period of outperformance for the FTSE 250?
I really don’t know, and this is all just a bit of speculation anyway. And I wouldn’t try to index the time of the performances. I’ll stick to what I’ve always done, which is buy individual stocks individually, if I think they’re a good value.
But I also like having investment trusts. And this makes me think about checking out some that focus on FTSE 250 stocks. For long-term holding, of course.
