The FTSE 250 (Financial Times Stock Exchange 250 Index) is a major stock market index representing the 101st to the 350th largest companies listed on the London Stock Exchange, as ranked by market capitalization. Think of it as the premier league's second division; these aren't the global titans you'll find in the FTSE 100, but they are substantial, well-established businesses that form the backbone of the UK economy. Because these “mid-cap” companies tend to have a much stronger domestic focus than the globe-trotting giants in the FTSE 100, the FTSE 250 is often considered a more accurate barometer of the UK's economic health. When pundits talk about how the “real” UK economy is doing, they're often looking at the performance of this index, not its more famous big brother. It offers a snapshot of a diverse range of sectors, from British retailers and real estate firms to industrial engineers and media companies.
Why is the FTSE 250 seen as a better reflection of the UK economy? It's all about where the money is made. The colossal companies in the FTSE 100 earn, on average, over 75% of their revenue from outside the UK. Their success is tied to global growth, currency fluctuations, and international politics. The FTSE 250, in contrast, is much more “Made in Britain.” Its constituent companies earn roughly half of their revenues domestically. This crucial difference makes the index highly sensitive to the UK's own economic heartbeat—things like British interest rates, local consumer confidence, and domestic government policy. If the UK economy is booming, the FTSE 250 is likely to reflect that joy more directly. Conversely, if the UK hits a rough patch, this index will feel the pain more acutely, making it a vital gauge for investors focused on the British market.
The FTSE 250 is populated by what investors call mid-cap companies. They occupy a sweet spot: large enough to be stable and have proven business models, but not so gargantuan that their high-growth days are behind them. You'll find a wide variety of businesses, many of which are household names in the UK even if they lack global brand recognition. This diversity means the index isn't overly reliant on a single sector, such as banking or oil, which can sometimes dominate larger indices. The index's components are reviewed every quarter to ensure it remains a true reflection of this market segment, with companies being promoted or demoted based on their changing market value.
Many investors see the FTSE 250 as the “Goldilocks” index—not too big, not too small, but just right.
This blend of growth and stability is a powerful combination that has, historically, allowed the FTSE 250 to outperform the FTSE 100 over the long term.
For a follower of Benjamin Graham's value philosophy, the FTSE 250 is a fantastic hunting ground. Because these mid-cap stocks are less glamorous than their FTSE 100 counterparts, they receive far less attention from big-name analysts and the financial media. This relative obscurity is a huge advantage. It creates opportunities for diligent investors to do their own homework and find genuinely undervalued companies—solid businesses trading for less than their true worth. Furthermore, these companies are often prime takeover targets for larger corporations or private equity firms looking for strategic acquisitions. Being an owner of such a company when a takeover bid is announced can result in a handsome and rapid increase in your share price.
If you're convinced by the FTSE 250's potential but don't have the time or inclination to pick individual stocks, there are simple and effective ways to invest.