I’m increasingly eyeing up FTSE 250 shares for my next buys. For one thing, I think the time might just be right.
I know trying to time investments can be a big mistake. It’s all about time in the market, not timing the market, as the old saying goes.
But if we look at time in broader sweeps, we often see cyclical patterns. And I can’t help thinking we could be heading for a good spell for smaller stocks.
Cyclical pattern
In past bull markets, the FTSE 250’s outstripped the FTSE 100. The smaller index is home to more domestic-focused stocks, and more growth prospects. That all brings more risk, but also more growth hopes than the top-drawer giants.
Conversely, in bear markets, investors often head for blue-chip safety, and the mid-cap index can fall. Are we heading for a new bull market? That’s the tricky question. So far in 2024, the FTSE 100’s up 7.5%, with the FTSE 250 managing 6.5%.
I might not call that a bull market yet. But with September inflation below target, I’m increasingly upbeat about the prospects for 2025 and beyond.
Discount growth
Finding the best growth stocks isn’t easy. But I like investment trusts, and there are plenty of those on the FTSE 250. So why not consider combining the two, and go for something like Baillie Gifford UK Growth Trust (LSE: BGUK)?
The trust “aims to maximise capital growth over the long-term from investment primarily in shares of listed UK equities which have the potential to deliver a total return in excess of the FTSE All-Share Index“.
And that surely has to be most people’s idea of what investing in FTSE 250 growth stocks is all about. It holds stocks like Auto Trader, Experian, Games Workshop, Howden Joinery… quite a diversified mix, really.
I’d say it’s definitely a riskier mix than trusts focusing on income or on FTSE 100 stocks. And with a market-cap of only around £250m, choppy sentiment could mean a volatile share price.
But at the moment, we’re looking at a 14% discount to net asset value. Does that suggest growth shares are cheap? I think it might.
Attractive dividends
The FTSE 250’s also home to investment firm abrdn, with an 8.6% forecast yield. The rocky stock market hasn’t helped the share price. But I can’t help seeing fear based on this being a FTSE 250 stock, and it could still be volatile.
Then there’s Greencoat UK Wind with a 7.9% yield on the cards. It doesn’t have any pricing power over the energy it sells, and it has a fair bit of debt. But it’s one of a number of specialised real estate investment trusts that I’m considering buying.
Others include Supermarket Income REIT, on a forward 8.5% yield, and Primary Health Properties at 7.1%. Both share the risks of their sectors though, and dividends aren’t guaranteed.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
An index with everything
So in the FTSE 250 we have growth, big dividends, pooled investments… the lot. What’s not to like?
This post was originally published on Motley Fool
