FTSE 250

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.

• Growth Potential: Unlike the mature blue-chips of the FTSE 100, many FTSE 250 companies are still in a dynamic growth phase, offering greater potential for your capital to grow. They are often more nimble and can adapt to market changes and expand into new areas more quickly than corporate behemoths.
• Reduced Risk: Compared to the Wild West of small-cap stocks, these are established companies with solid track records and more predictable earnings. This reduces the risk of a company simply going out of business, which is a real concern with smaller, less-proven enterprises.

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.

• Passive Investing: You can buy a low-cost index fund or exchange-traded fund (ETF) that simply tracks the performance of the entire FTSE 250. This is a classic passive investing strategy that gives you instant diversification across 250 UK-focused companies with a single purchase. It’s a simple, “set-it-and-forget-it” way to bet on the long-term health of the British domestic economy.
• Active Investing: Alternatively, you can use the index as a pre-screened list of potential investments. By analysing the companies within the index, you can apply value investing principles to select a handful of businesses that you believe are the most promising and fairly priced. This requires more effort but allows for the possibility of beating the index's average return.