The FTSE 100 vs FTSE 250
Anyone vaguely familiar with the UK financial markets is likely to have heard of the FTSE 100. But what about the FTSE 250? What is the difference between FTSE 100 and FTSE 250? Which is the better investment? In this article, we will take a detailed look at the FTSE 100 vs FTSE 250 and demonstrate how to invest in both!
Table of Contents
What Is the FTSE 100?
Between the FTSE 100 and FTSE 250, the former is the most well-known both in the UK and internationally.
The FTSE 100 is a ‘blue chip’ stock index which was established in 1984 and is made up of the 100 largest companies - by market capitalisation - which are listed on the London Stock Exchange (LSE).
Despite being listed in London, the majority of the companies within the FTSE 100 have a large global presence. In fact, around 70% of FTSE 100 companies’ revenue comes from overseas.
What Is the FTSE 250?
The FTSE 250, which was established in 1992, is a mid-cap stock index which is made up of the next 250 largest companies by market capitalisation listed on the LSE. In other words, the FTSE 250 comprises of the 101st – 350th largest companies listed in London.
Unlike the FTSE 100, the companies which make up the 250 are more domestically focused. For this reason, between the FTSE 100 vs FTSE 250, the FTSE 250 is often viewed as a better indicator for the health of the overall UK economy.
FTSE 100 vs FTSE 250 – The Numbers
Source: Londonstockexchange.com – 25 May 2023
What Is the Difference Between FTSE 100 and FTSE 250?
Now we know what the FTSE 100 and FTSE 250 are, let’s take a look at some of the key differences between the two UK stock indices.
Market Capitalisation, Growth Potential and Income
One of the biggest differences between the FTSE 100 vs FTSE 250 is the total market capitalisation. The FTSE 100 has a significantly greater market cap than the FTSE 250 due to the fact that it is made up of the largest companies listed in London. This has a couple of knock-on implications for traders and investors.
The FTSE 100 is composed of large-cap companies which have already achieved considerable success and are leaders within their industries. Therefore, it follows that the index has less growth potential than the smaller FTSE 250 - which is, instead - made up of smaller, mid-cap companies. These mid-cap companies have already achieved a certain level of success, but, due to their smaller size, are likely to have greater potential for future growth than constituents of the FTSE 100.
However, for this same reason, the FTSE 100 is renowned for producing a decent income for investors, as many of its large-cap constituents are reliable dividend distributers. At the time of writing (26 May 2023), the FTSE 100 has a dividend yield of 3.8% which is likely to appeal to income investors.
It should be noted, however, that distribution yields are subject to constant change and dividend payments are not always guaranteed. For example, during the coronavirus pandemic, many dividend paying companies either reduced or stopped paying dividends in order to preserve cash to help survive the downturn.
Index Weighting
In both the FTSE 100 and the FTSE 250, companies are weighted within the index by their free-float market capitalisation. In other words, the larger a company’s free-float market capitalisation, the more influence their performance has over the whole index.
Due to the smaller number of stocks and the large-cap nature of the FTSE 100, the performance of some of the larger companies at the top of the index have a significant influence over the index as a whole.
For example, as of 31 March 2023, the company with the highest weighting in the FTSE 100 was AstraZeneca which has a weighting of 8.46%, followed by Shell and HSBC with weightings of 8.2% and 5.64% respectively.
Conversely, at the same time, the company with the highest weight in the FTSE 250 was IMI Plc which comprised 1.23I% of the total index.
This means that the FTSE 100 is more prone to being influenced by individual companies than the FTSE 250.
Relationship With the GBP
Due to the fact that the majority of revenue for FTSE 100 companies is generated from overseas, the index tends to have an inverse relationship with the GBP. In other words, when the GBP is strong, the FTSE 100 tends to perform worse and vice versa.
This is because, as the majority of revenue for FTSE 100 companies is earned in USD, if the GBP is stronger than usual, when the dollar revenue is converted back into sterling, it is worth less. The opposite is true when the GBP is weaker than usual.
FTSE 250 constituents are much more domestically focused than FTSE 100 companies and, therefore, have a closer relationship to both the GBP and the performance of the UK economy.
FTSE 100 vs 250 - Recent Performance
So, how about the recent performance of the FTSE 100 vs FTSE 250? Which has performed better? The table below shows the total annual returns of each index in each of the last five calendar years.
Should I Invest in FTSE 100 or 250?
As is usually the case with questions like these, when it comes to the FTSE 100 vs FTSE 250, there is no definitive answer as to which is the best.
There are lots of factors to consider when choosing which is best for you. With the information we have covered about the two indices, we can highlight a few important factors when considering whether the FTSE 100 or 250 is better for you.
Income vs Growth
Firstly, as mentioned above, the FTSE 100 has a higher and more dependable distribution yield. Therefore, for investors who are looking to receive a regular and reliable income from their investments, this index is probably going to be more appealing.
On the other hand, for investors who are more interested in growth potential, the FTSE 250 could be the better choice.
The State of the Global Economy
The FTSE 100 is composed of the largest, most successful companies listed in the UK. A significant proportion of these companies produce consumer staples. In other words, they create products whose demand does not tend to be significantly affected by economic downturns or uncertainty.
Five of the index’s highest weighted companies are perfect examples of this: AstraZeneca, Shell, Unilever, Diageo (alcohol) and British American Tobacco – these companies all produce products that, regardless of the state of the economy, can generally rely on consistent demand.
During times of economic uncertainty – amidst rapidly increasing inflation, for example – many investors prefer to invest in this type of company, due to their reliable stream of revenue. Moreover, large and successful companies are better poised to weather economic turmoil as they will tend to be more diversified and have more resources at their disposal to help them cope.
Therefore, it may be the case that during times of uncertainty in the global economy, investors will be more inclined to invest their money in FTSE 100 companies, which can cause the share prices of these companies to increase.
This quality was evident during the market turmoil of 2022 when, as the FTSE 250 plunged almost 20%, the FTSE 100 gained 0.9%. However, please note that past performance is not a reliable indicator of future results, and that there is no guarantee that the FTSE 100 will always perform well during market turbulence.
Confidence in the UK Economy
As the FTSE 250 is largely made up of companies who exclusively conduct their business within the UK, an investment in the FTSE 250 is essentially an investment in the UK economy. Therefore, the FTSE 250 will largely appeal to investors who are feeling confident about the future of the UK economy.
How to Invest in FTSE 100 or 250
Whilst it is not possible to invest directly in either stock index, investors can buy shares in funds which track the FTSE 100 or FTSE 250.
With an Invest.MT5 account from Admirals, you can invest in a number of Exchange-Traded Funds (ETFs), including several which track the performance of either the FTSE 100 or the FTSE 250! Index ETFs passively track their underlying stock index by purchasing shares in all the constituents using the same weighting methodology.
Admirals offers various ETFs which track either the FTSE 100 or FTSE 250. As the ETFs all hold shares in the same companies, any difference in the performance of ETFs from different providers should be minimal. However, bear in mind that fees may vary between providers.
Among the options offered by Admirals are the Vanguard FTSE 100 UCITS ETF (VUKE) and the Vanguard FTSE 250 UCITS ETF (VMID).
In order to invest in either a FTSE 100 ETF or FTSE 250 ETF, you should follow these steps:
- Open an Invest.MT5 account and log in to the Dashboard
- Find your account details and click ‘Invest’ to open the Admirals web trading platform
- Search for the ETF in which you want to invest to open the instrument page
- Enter the number of shares you wish to purchase and click ‘Buy’ to send your order to the market
Investing with Admirals
With an Invest.MT5 account from Admirals, investors can buy shares in over 4,500 listed companies and more than 200 ETFs from around the world! Click the banner below to register for an account today:
FTSE 100 vs 250 FAQ
What Is the Highest the FTSE 100 Has Been?
At the time of writing, the FTSE 100’s highest closing value took place on 3 February 2023, with the index ended the session at 7,901.80.
When Did the FTSE 100 Start?
The FTSE 100 Index was launched on 3 January 1984.
When Did FTSE 250 Start?
The FTSE 250 Index was launched on 12 October 1992.
What Is the FTSE 350?
The FTSE 350 Index is a stock index which is made up of all the constituents of the FTSE 100 and FTSE 250 indices. In other words, the FTSE 350 comprises of the 350 largest companies listed on the London Stock Exchange by market capitalisation.
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