The FTSE 250 index of medium-sized corporations doesn’t all the time get the identical stage of consideration because the blue-chip FTSE 100.

However I personal some FTSE 250 shares and like the truth that up and coming companies can supply progress prospects that is perhaps more durable to seek out when taking a look at mature corporations.

Poorer efficiency than the FTSE 100

So, if I had put £1,000 into the FTSE 250 a 12 months in the past, what would that funding now be value?

In the course of the previous 12 months, the index has elevated in worth by 8%.

Due to this fact, if an investor had put £1,000 in 12 months in the past, it ought to now be value round £1,080. That isn’t unhealthy, for my part, however additionally it is notably under the 13% capital progress achieved over that interval by the FTSE 100.

There are dividends too. The yield is at the moment 3.3%. Once more, not unhealthy I really feel, though not fairly as enticing as the three.6% at the moment supplied by the FTSE 100.

Why I don’t purchase the index

The FTSE 250 is meant to comprise rising corporations, so what would possibly clarify its current underperformance versus the blue-chip index?

All corporations face dangers, however smaller corporations could lack the sources and expertise to deal with them in addition to mature companies which were round for many years (or in some instances, for hundreds of years).

Additionally when a FTSE 100 enterprise loses sufficient worth it will get booted into the FTSE 250 and vice versa.

So the smaller index loses some corporations which have rising share costs, whereas FTSE 100 companies that decline sharply sufficient transfer down into the FTSE 250. Ocado is an instance.

That implies that the FTSE 250 virtually by design has some disadvantages in comparison with the larger index.

However the primary motive I don’t make investments instantly (for instance, via a fund) is similar for each: I choose to try to discover particular person shares I feel can doubtlessly do higher than the index total.

Is that doable? Sure, however it’s not essentially as straightforward as it could sound.

Within the fallacious lane

For instance,  think about a share I used to personal: Hollywood Bowl (LSE: BOWL).

Over the previous 12 months, its price has fallen 5%, considerably underperforming the index. Its dividend yield of 4.3% is healthier, however even contemplating that, an investor would have finished worse placing £1,000 into Hollywood Bowl shares a 12 months in the past than the FTSE 250 total.

But the enterprise is worthwhile and is rising handily, thanks each to its UK enterprise and to speedy enlargement in Canada.

Is that this a short-term share efficiency downside, then?

No. Over 5 years, the Hollywood Bowl share price has misplaced 1%. Then once more, throughout that interval the FTSE 250 total has gone down 4% so Hollywood Bowl has finished a bit higher in relative phrases (though not by a lot, frankly).

With giant buyer demand, an in depth community of bowling  lanes (and a few miniature golf websites) and a confirmed enterprise mannequin, I see so much to love about Hollywood Bowl.

However one danger is a weak economic system hurting client spending on leisure actions like bowling. So though I just like the funding case, the present price-to-earnings ratio of 16 is a bit excessive to seize my consideration. I cannot be investing once more simply but.