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Thus far, 2024 has been an excellent yr for the flagship FTSE 100 index. It hit a brand new excessive earlier this yr and, though it’s not at that degree, continues to be 7% larger than the place it was firstly of January. That represents greater than half the five-year acquire of 13% within the index. What in regards to the smaller FTSE 250?
It too, has gained up to now in 2024. Certainly, it us up by 6%.
Over 5 years, although, the index of small and medium-sized firms has really fallen, albeit by a modest 1%. Nonetheless, a fall is a fall – and positively not what I search for as long-term investor.
Worth acquire and dividend streams
This yr’s efficiency signifies that, if I had put £20,000 into the FTSE 250 firstly of the yr (for instance, by investing in an index tracker fund), my funding ought to now be value round £21,117.
On prime of that, the present yield of the index is about 3.4%. If I had purchased firstly of the yr, the lower cost signifies that I’d now be incomes a barely larger yield of round 3.6% per yr. I’d now be sitting on near 11 months’ value of dividends, relying on the ex-dividend and fee schedule of the shares I purchased.
Over a 12-month interval, that yield on a £20k funding must be round £720.
That equates to virtually £14 per week on common of passive revenue, an quantity I might search to lift by compounding the dividends.
What’s been holding the FTSE 250 again?
Over one yr, the efficiency right here has been respectable however not excellent. Over 5 years, I feel it has been disappointing.
One motive folks put money into a smaller index is that it accommodates firms which can be up and coming. They may have extra progress potential than the big, established beasts of the FTSE 100.
I feel there might be some reality in that. However when the financial system goes by way of turbulent intervals, because it has prior to now 5 years, smaller companies can discover it tougher to adapt than large blue-chip companies with deep pockets.
Not all FTSE 250 companies are nice progress tales, for my part, or a minimum of not when the query is whether or not I wish to put money into them.
Take Ocado (LSE: OCDO) for instance.
The share has crashed 55% up to now this yr. The ensuing collapse in market capitalisation signifies that the previous FTSE 100 member was relegated into the Metropolis’s second division in the summertime.
Over 5 years, the share has misplaced three-quarters of its worth.
It does have sturdy progress prospects, not just for its grocery enterprise but in addition the providers it supplies worldwide enabling different retailers to fulfil on-line orders. Certainly, the retail enterprise noticed gross sales income develop 11% within the first half of the yr in comparison with the identical interval final yr, whereas know-how options revenues surged 22%.
So, why has the Ocado share value slumped?
It stays persistently loss-making and closely money burning. As an investor, I don’t identical to progress – I like worthwhile progress. For now, I see a threat Ocado will hold making large losses scaling its pricey fulfilment centre community, so I cannot be shopping for the share.
