The FTSE 250 has lengthy been the UK’s flagship development index. Being dwelling to mid- and small-cap firms in London’s predominant market exposes buyers to shares with better long-term potential. In fact, these smaller companies additionally open the door to larger ranges of danger. That’s why, traditionally, the FTSE 250 has been considerably extra unstable than its bigger sibling, the FTSE 100.

Nevertheless, with financial situations enhancing all through 2024, the index has delivered some spectacular returns year-to-date. Since January, the FTSE 250’s up round 11% together with dividends. However how a lot cash might buyers have made in the event that they purchased an index tracker fund on the top of the pandemic in March 2020?

Capitalising on a market crash

When lockdowns had been deployed around the globe, the inventory market crashed. Within the case of the FTSE 250, the index tumbled by nearly 40% between 20 February and 20 March 2020. Nevertheless, as prudent long-term buyers know, shopping for when shares are in freefall is usually a profitable technique to capitalise on the eventual restoration.

Within the case of the FTSE 250, since its Covid lows, the index has gone on to generate a 52% return. Nevertheless, when the additional returns generated from dividends are included, the full achieve for affected person buyers is nearer to 82%. In different phrases, If I’d invested £5,000 in a low-cost FTSE 250 index fund, I’d have round £9,100 at the moment.

That roughly interprets to a 16.2% annualised return. And contemplating that’s nearly triple the common return generated by this index over the past decade, it goes to indicate that capitalising on market volatility may be very profitable in the long term.

Nevertheless, the returns for inventory pickers might have been even better.

Looking for larger returns

As a substitute of shopping for shares in a passive index fund, buyers can take issues into their very own palms and take into account investing in particular person companies immediately. This does require a much more hands-on method and dedication in the direction of research and portfolio administration. However this larger danger comes paired with the potential for producing market-beating returns.

That’s certaintly been the case with Clarkson (LSE:CKN). The worldwide delivery companies agency noticed its operations disrupted because the pandemic decimated provide chains. Nevertheless, the group’s cash-rich, low-debt steadiness sheet gave it all of the monetary sources wanted to climate the storm. And as provide chains had been repaired, demand for worldwide delivery companies rebounded.

As such, the FTSE 250 inventory’s up simply over 90% over the interval, or 125% after together with the impression of dividends. That’s the equal of a 22.5% annual common return, which might have grown a £5,000 preliminary funding to over £11,200.

Delivery is a notoriously cyclical trade with numerous transferring elements. Freight charges have began to fall in latest months because the delivery trade adapts to the continued battle within the Purple Sea. As such, Clarkson’s earnings, within the close to time period, might begin to sluggish. In different phrases, sustaining this double-digit return for brand new shareholders at the moment appears unlikely.

However, it goes to indicate that by researching the best companies, buyers can probably unlock far superior returns, particularly when shopping for during times of financial uncertainty.