The FTSE 100 vs FTSE 250
Anyone vaguely familiar with the UK financial markets will have heard of the FTSE 100. But what about the FTSE 250? What are the differences between the FTSE 100 vs FTSE 250? Which is the better investment? In this article, we will answer these questions and more!
Table of Contents
What Is the FTSE 100?
Between the FTSE 100 vs FTSE 250, the former is the most well-known both in the UK and abroad.
The FTSE 100 is a ‘blue chip’ stock index which was established in 1982 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, the FTSE 250 is viewed by many as a better indicator for the health of the overall UK economy.
FTSE 100 vs FTSE 250 – The Numbers
|FTSE 100||FTSE 250|
|Composition||The LSE’s 100 largest companies||The LSE’s next 250 largest companies|
|Net Market Capitalisation||£1.92 trillion (11 October 2021)||£419 billion (11 October 2021)|
|All-time Closing High||7,877.45 (22 May 2018)||24,250.80 (1 September 2021)|
|Largest Constituent by Market Cap||AstraZeneca: £139,469 million (11 October 2021)||Darktrace Plc: £5,797 million (11 October 2021)|
Source: Londonstockexchange.com – 12 October 2021
What Is the Difference Between FTSE 100 and FTSE 250?
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 potential 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 FTSE100.
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 (12 October 2021), the FTSE 100 has a distribution yield of almost 3.5% 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.
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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, at the end of Q2, the company with the highest weighting in the FTSE 100 was AstraZeneca which comprised 6.02% followed by Shell and Unilever with weightings of 5.87% and 5.82% respectively.
Conversely, at the same time, the company with the highest weight in the FTSE 250 was Morrisons which comprised 1.34% 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.
On average, FTSE 250 constituents are much more domestic than FTSE 100 companies and, therefore, much more closely related to both GBP and the performance of the UK economy.
FTSE 100 vs FTSE 250 - Recent Performance
So, how about the recent performances of the FTSE 100 vs FTSE 250? Which has performed better? The table below shows the total annual returns of each index for the last five calendar years.
|January 2016 – January 2017||January 2017 – January 2018||January 2018 – January 2019||January 2019 – January 2020||January 2020 – January 2021|
As we can see, despite being the second tier stock index in the UK, in three of the last five years, the FTSE 250 has outperformed the FTSE 100 considerably.
Which Is Better, the FTSE 100 or the FTSE 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 and, as we have seen from the recent performance, although the FTSE 250 can claim the better performance in three out of five years, in two of the years the opposite was true.
With the information we have covered about the two indices, we can highlight a few important factors when considering which index 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 like to receive a regular and reliable income from their investments, this index is bound to be more appealing.
On the other hand, for investors who are more interested in generating growth through their investments, the FTSE 250 is likely to 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 is not majorly 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, will always be in 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 the FTSE 100.
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’s economy.
Investing in the FTSE 100 and FTSE 250 With Admirals
With an Invest.MT5 account from Admirals, you can invest in Exchange-Traded Funds (ETFs) 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 the FTSE 250, as the ETFs all hold shares in the same companies, any difference in their performance of ETFs from different providers will be minimal. 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
- Download and open the MetaTrader 5 trading platform
- Head to the Market Watch tab on the left-hand side of the screen, where you can search for the FTSE ETF you want to invest in
- Once added to your Market Watch, right click on the symbol and select ‘Chart Window’ to open a price chart
- Press the New Order button at the top of the screen, fill out the number of shares in the FTSE ETF you want to purchase and then click Buy to send the order to the market!
Why Invest With Admirals?
As well as being able to invest in over 4,300 shares and over 300 ETFs, investors who choose the Invest.MT5 account benefit from the following:
- Access to the world’s number one multi-asset trading platform, MetaTrader 5, on both your desktop and mobile phone
- Regular market analysis and a constantly growing library of educational articles
- Ability to open an account with a minimum deposit of just €1
- Low transaction commissions and no account maintenance fees
- Exclusive access to our Premium Analytics portal, where you will find all the latest market news, global sentiment and technical insight
In order to start enjoying all these benefits and more, open an account by clicking the banner below:
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