The FTSE 250 typically will get much less consideration than the flagship FTSE 100 index of main firms.

However each include a lot of family names. The FTSE 250, for instance, contains well-known firms resembling Burberry (LSE: BRBY), Video games Workshop, Ocado, and ITV.

May investing within the index probably be a recipe for achievement?

Storming latest efficiency

Trying again over the previous 12 months, the FSTE 250 has elevated in worth by 23%. That signifies that if I had put £20,000 into the index one yr in the past (for instance, through an index tracker fund) my funding should be value round £24,600 now, excluding any prices levied by the tracker fund.

Not solely that, however I might have earned dividends too. At the moment the FTSE 250 dividend yield is 3.3%. That quantities to round £660 yearly in dividends on a £20,000 funding.

Now, keep in mind {that a} dividend yield is a operate of what one pays for shares in addition to the dividend per share. Dividends can transfer up – or down. However, given the a lot decrease degree of the FTSE 250 a yr in the past, if I had invested then I might seemingly have earned a better yield than 3.3% over the previous yr.

Seeking to the longer term

What subsequent?

In any case, previous efficiency will not be essentially a information to what’s going to occur sooner or later.

Over the previous 5 years, for instance, the FTSE 250 has risen solely 4%. That features the storming efficiency of the previous 12 months, underlining the volatility of the index.

The place issues go from right here relies on the broader financial system, for my part.

Take Burberry for example. It was previously a constituent of the FTSE 100, however a tumbling share price (down 60% up to now 12 months) has seen its market capitalisation shrink, therefore the motion to the secondary index.

The explanations for the Burberry share price crash had been to some extent the results of wider financial forces. A weak financial system in key markets has led to shrinking gross sales for a lot of luxurious manufacturers. As a model that’s cheaper than some high-end rivals, Burberry has seen gross sales fall dramatically with out having the good thing about a really prosperous buyer base that’s proof against financial slowdowns.

Nonetheless, I believe its model, massive buyer base, and intensive distribution community are all belongings that should see the enduring raincoat maker enhance enterprise efficiency once more sooner or later over the following few years.

As to when that may occur, although, I’m unsure. The type of positive aspects we have now seen within the FSTE 250 over the previous yr mirror an optimistic view of the financial prospects for its member firms, for my part.

It that optimism stays, the index might preserve shifting up. However I see a threat that financial weak spot might push the FTSE 250 degree down within the subsequent a number of years.

I’m not planning to purchase an index fund and am as a substitute searching for nice particular person shares within the index which may supply nice worth proper now.