How FTSE 250 could earn you 11pc a year

For 30 years it’s been heartbeat of the UK. Here’s . . .

THE FTSE 250, which is 30 next week, has become a £453bn powerhouse at the heart of the economy.

Often touted as a bellwether for the UK economy, the index is comprised of medium-sized British businesses which tend to be more domestically focused than the international giants of the FTSE 100.

The FTSE 250 index launched on October 12, 1992 as a measure of essentially the 101st to 350th biggest listed companies. It had just 831.38 points when it was launched eight years after the creation of its larger counterpart the FTSE 100. Things didn’t start well. Three days after it launched, the FTSE 250 had dropped 10 points to 821.6. But that would be the lowest it would ever fall. Yesterday it reached a record high of 20,166.54. Companies on the index have seen their total market cap soar from £98bn and investors who have tracked it since its launch have seen an annualised return of 11.6pc a year.

But the mid-cap market’s correlation with the health of the UK economy also means investing in it can be a bumpy ride.

The day the result of the Brexit vote was revealed saw the biggest-ever one-day fall on the index, 7.2pc. However, those who held their nerve recovered their losses within a month.

The FTSE 250’s worst-ever losing streak began in April 2007, just months before the credit crunch hit global stock markets. It dropped 42.2pc between April 2007 and December 2008.

The mid-market’s best-ever run came between 2003 and 2006 when it recorded an impressive 12 consecutive quarters of positive growth, gaining some 113.13pc over that period.

Jason Hollands, managing director at Tilney Bestinvest, says: ‘The mid-cap index has been the stand- out performer of the UK stock market for some time now, having returned 133pc over the past decade.’

Investors who want to tap into the often impressive performance of this index can pick from a handful of cheap tracker funds such as HSBC FTSE 250 Index tracker, which charges just 0.17pc a year and aims to mirror the market’s performance.

For those hoping for even more, there are a number of managers whose funds focus on these midcap stocks. Hollands likes the Axa Framlington UK Mid Cap fund which has beaten the FTSE 250 over the past five years, delivering a return of 118.7pc.

Rob Morgan, investment analyst at Charles Stanley, likes the Neptune UK Mid Cap fund whose manager Mark Martin he says is ‘a very good stock picker’.

Investors who want a steadier return can pick a fund which invests only some of its money into this part of the stock market.

The Standard Life UK Equity Income Unconstrained fund has 38pc of its money in medium-sized stocks. The Threadneedle UK Equity Income fund has 42pc of its assets in these companies.