The FTSE 250 is an acronym for the Financial Times and Stock Exchange 250 index which represents the top FTSE 250 companies listed on the London Stock Exchange. This means that it’s essentially a capitalization-weighted index that’s made up of 101 to 350 top companies that are listed on the London Stock Exchange.
The index that represents 250 companies is calculated in real-time and is refreshed and published by the minute. However, demotions and promotions only occur quarterly in the months of March, June, September, and December.
While FTSE 250 companies are related to companies listed in the FTSE 100 index, these aren’t generally made up of multinational corporations. Furthermore, a significant portion of companies listed within index also represents investment trusts.
For the most part, the performance of the FTSE 250 can be dragged down by high exposure to investment trusts.
The FTSE 250 is quite similar to the FTSE 100, but it’s more like a little brother to the latter. While FTSE 100 is made up multinational corporations, the FTSE 250 is comprised of businesses with a domestic focus in the United Kingdom.
One important characteristic to pay attention to is the fact that FTSE 250 companies aren’t 250 of the highest capitalized stocks in Britain, rather they’re just stocks ranked from 101 to 350 in terms of market capitalization.
This makes the risk and returns profile of the FTSE 250 completely different to the FTSE 100.
Since the companies in the FTSE 250 are mid-cap to small-cap, they can often lack informational efficiency that’s enjoyed by large-cap companies in the FTSE 100. At the same time, these mid-cap companies can also outperform their large-cap counterparts, but there is a sense of high volatility.
Because of their size, FTSE 250 companies also have the potential of scaling rapidly. They also provide investors with a good option when it comes to diversifying their investment portfolio.
Beginners thinking of getting into the FTSE 250 should practice caution and do their homework to further develop their skills and get familiar with the inner workings of the index.
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