The UK’s two biggest stock-market indices are the FTSE 100 and FTSE 250, valued at £2trn and £325bn, respectively. Within our family portfolio, my wife and I own 15 Footsie shareholdings and five FTSE 250 stakes. But which of these two would I buy today?
Battle of the indices
I’ll review the performance of both and then their relative merits. Here’s their performance over five timescales:
Period
FTSE 100*
FTSE 250*
Difference*
One month
2.9%
2.8%
0.1%
2024 so far
2.6%
0.2%
2.4%
Six months
4.0%
7.1%
-3.1%
One year
5.8%
5.3%
0.4%
Five years
9.0%
3.2%
5.8%
* These returns exclude dividends.
The larger index has beaten the smaller over four periods, but the FTSE 250 wins over six months. Overall, there’s not much to separate the two of late, but these figures do exclude the returns from cash dividends.
Notably, both have trailed far behind the US S&P 500 index, which has surged by 32.6% over one year and 84.7% over five years.
What about fundamentals (and dividends)?
Right now, the large-cap index boasts a dividend yield of almost 4% a year, while its mid-cap rival offers a yearly cash yield of roughly 3.4%. Thus, the large index offers higher passive income for investors.
Furthermore, the bigger index trades on a multiple of 11.8 times earnings, delivering an earnings yield of 8.5% a year. These figures for the mid-cap index are 12.1 and 8.3%, respectively.
Therefore, these London market measures are trading at broadly similar levels. However, it’s important to note that both are valued at large discounts to other major stock markets, both in historical and geographical terms.
Therefore, with little to differentiate between the two, I’d probably buy both, rather than one or the other. I could do this by buying into a low-cost FTSE 350 tracker fund or similar, taking advantage of attractively priced UK stocks across the board.
I like this FTSE 250 stock
Alternatively, instead of buying into a market index or two, I could pick and choose my own stocks. For example, I’m positive on the shares of ITV (LSE: ITV). Founded in 1955, ITV is Britain’s biggest commercial terrestrial broadcaster.
Unfortunately, old-school linear television is falling out of favour with younger generations, leading advertisers to cut back their spending on TV ads. This has led to falling revenues and earnings at the Love Island broadcaster.
Then again, the group has two go-go growth divisions under its wing: producing content for other media outlets globally, plus fast-growing streaming service ITVX. Good news: growth is strong in these and other digital divisions.
ITV shares haven’t done too well in recent years. Its stock is down 14.1% over one year and 45.4% over five years. Last month, the share price plunged to a 52-week low (on 28 February) of 54.94p, before rebounding.
Now at 71.06p, this FTSE 250 firm is valued at £2.9bn, while its stock offers a chunky dividend yield exceeding 7% a year. Even if the group’s revenues, earnings and cash flow are lower this year than in 2023, I suspect this payout will be held.
Hence, my wife and I will hold on tightly to our ITV holding, bought at 68.7p a share!
The post Which should I buy, the FTSE 250 or the FTSE 100? appeared first on The Motley Fool UK.
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Cliff D’Arcy has an economic interest in ITV shares. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
