Investing in the FTSE 250

by , 20th September 2018

Last week saw the release of August retail sales and economic data in the UK and the results were better than expected, suggesting that the UK could be a more attractive investment opportunity despite pressure from rising inflation and Brexit.

UK retail sales rose by 0.3% as opposed to the anticipated 0.2% decline in August. The UK also got a boost earlier in the month with data showing that in the second quarter of the year GDP also increased by 0.6%, up from 0.4% in the first three months of the year. This was up on analyst forecasts.

Total retail sales table from the ONS (below)

Data from the ONS shows that household goods sales jumped by 4.5%, while non-food stores saw a 2.8% rise. Food sales dropped by 0.6% and clothing by 1.9%, not that surprising given August is typically holiday season.

Rhian Murphy, a senior statistician for the ONS, said: “Retail sales remained strong in the three months to August, with continued growth across all sectors. Food and household goods stores particularly benefitted from the warm weather when compared with last summer.

According to the ONS, the UK labour market in September is also in better shape than this time last year.

The employment rate (the proportion of people aged from 16 to 64 years who were in work) was 75.5%, slightly higher than for a year earlier (75.3%). Meanwhile there were 1.36 million unemployed people (people not in work but seeking and available to work), 95,000 fewer than a year earlier. The unemployment rate (the number of unemployed people as a proportion of all employed and unemployed people) was 4.0%; it has not been lower since December 1974 to February 1975.

This comes despite UK inflation rising from 2.5% to 2.7% last Wednesday and Brexit angst raging across the region. The UK parliament seems no closer to an agreement and a ‘no-deal’ Brexit appears increasingly possible as the 11pm deadline looms on 29th March next year.

Despite this uncertainty UK stocks haven’t reacted particularly badly. Since the vote in June 2016 the FTSE 250 has risen 34.5% from June 24th 2016 to 20th September 2018.

The FTSE 250 (below)

Source: Bloomberg

The FTSE 250 is made up of mid-cap companies in the UK with 50% of the income coming from international operations. This is bolstered by sterling weakening since the referendum. The sterling to euro rate has dropped from 1.23 in June 2016 to around 1.12 to 20th September. Against the US dollar it’s a similar story falling from 1.37 to 1.31. These factors mean that profits overseas are worth more when changed back into sterling.

The factors above are all supportive for the UK economy and potentially investing in it. When you consider that because the FTSE 250 only derives 50% of its income from international profits, as opposed to 75% like the FTSE 100, it means it’s more closely correlated to the UK economy, which appears to be in fairly good health.

The index has dropped off slightly in the last three months, but this could be a result of UK economic hurdles being priced in.

In fact, UK mid cap stocks have done better overall than European stocks excluding the UK over the last year. iShares MIDD in orange has returned 7.92% in the last year, while the iShares MSCI Europe ex-UK UCITS ETF EUR Dist (IEUX) in black has returned only 1.57%.

Source: Bloomberg

There are only a handful of ETFs on offer tracking the FTSE 250, unsurprisingly they’ve all performed similarly, but they do come with varying price tags. The cheapest is Vanguard’s offering with a total expense ratio (TER) of 0.1%, it is also the youngest on offer having been launched in 2014. It also has the second largest portion of assets under management with £753.74m after iShares FTSE 250 UCITS ETF which has £825.5m, but a TER of 0.40%.

All the ETFs apart from HMCX have Morningstar ratings of three stars. HMCX has a two star rating.

We’ve put below a list of some of the ETFs available on the London Stock Exchange. This doesn’t include leveraged and inverse ETPs, which are also listed on the exchange and cover the FTSE250.

 

ETF TER 3m

RTN

1 YR RTN Index
HSBC FTSE 250 UCITS ETF

HMCX

0.35% -1.08% 7.34% FTSE 250 Index
Vanguard FTSE 250 UCITS ETF

VMID

0.10% -0.77% 7.47% FTSE 250 index
iShares FTSE 250 UCITS ETF GBP Dist

MIDD

0.40% -0.76% 7.92% FTSE 250 Index
Invesco FTSE 250 UCITS ETF

S250

0.25% -1.08% 7.39% FTSE 250 Index
Lyxor FTSE 250 UCITS ETF

L250

0.35% -1.07% 7.38% FTSE 250 Total Return Index
XMCX 0.20% (all in) -0.88% 7.65% FTSE 250 Total Return Index

 Source: Bloomberg

ETF Issuers Featured in this Article