Chart of the Week

THE FTSE 250’s TIME TO SHINE?

The chart below is a ratio of the FTSE 250 index divided by the FTSE 100, covering the past 10 years.

This is a simplistic metric, but one that neatly captures the significant underperformance of the FTSE 250 stocks since late 2021; a falling line shows the FTSE 100 producing a better return than the FTSE 250.

As a reminder, the FTSE 100 is the UK large-cap index and most of its constituent firms have significant international operations.

Conversely, the FTSE 250 mid-cap index houses companies with more of a domestic focus. It thus tends to be a better barometer of how the UK economy is faring compared to the FTSE 100, which reflects the global conditions.

The significant underperformance of the FTSE 250 thus highlights the UK’s recent struggles relative to the global economy, but this bucks a multi-year trend that generally saw the FTSE 250 outperform its large-cap counterpart.

We may be on the verge of this ratio resuming an upward trend.

Despite Britain’s economic woes, the UK mid and small cap stocks are trading at depressed valuations, so even a minor improvement in news flow could catalyse a decent rally, at least in relative terms.