What I’ve Learned From My FTSE 250 Tour

Ratings from A to D, performance to date, and my five big takeaways

Photo by Remy Boulton on Unsplash

As long-term readers may recall, in November I set out my thoughts on building a UK equity portfolio – first, answering the question of why bother picking stocks (short version, don’t bother unless you find it interesting) and second, some ideas on how to go about it (short version, define a universe, set some criteria, build a concentrated portfolio but with some diversification across sectors/structural themes).

In the how to part, I set out a plan to go A to Z through the FTSE 250, something my husband said was really silly because it would take forever and I’d want to write about other stuff. He was right, but I still don’t regret it. I’ve got to the end of the Ds, roughly a quarter of the way through the index, and it seems a good time to take stock of performance and some key learnings along the way.

Let’s start with a review and then get into some numbers, and finally some lessons.

Where I’ve got to

As of 28 February 2025, I’d reviewed 40 companies, starting with 4imprint and ending with Diversified Energy Company, and assigned them all a positive, neutral or negative rating. The idea was a quick take on each business including a skim of the financials but little focus on detailed understanding or valuation. The purpose was to determine whether this was an industry and business model that appealed for a long-term buy-and-hold strategy – and for further research – not whether to make an investment today.

Of the 40 companies, I’ve rated 13 positive, 14 neutral, and 13 negative. Not intentionally, but I think there’s some innate bias that leads against too extreme positions in any one direction.

Looking at performance, there are some major caveats. For starters this isn’t a portfolio yet, it’s just a rating list of stocks. Still, I did want to see how the buckets were roughly performing and whether I’d made any major glaring errors to date.

To do this, I’ve kept things simple, and calculated the average change in share price between the date I assigned a rating (10 October 2024 to 24 February 2025) and 28 February 2025 for each bucket.

The good news is that the positive bucket is outperforming the neutral and negative buckets, as well as the iShares FTSE 250 ETF which can be used as a benchmark reference.

That’s reassuring although let’s not get carried away. Taking the average price change since the rating date means stocks reviewed first will have more bearing, simply because over a longer period the stock price will tend to move more in absolute terms. Most of the Ds were only included in February and the share prices have moved little since then.

You can see this in the chart below - which shows the stock-by-stock performance.

Drilling down a bit more, of the top 5 best performing stocks, three were rated positive, and two of those, Babcock and Chemring, were in defence, explicitly included because of increasing European defence spending being a major structural theme. I’m still not sure what company is the best way to play this, but for now, a rising tide is lifting all boats - even more so over the last few days.

The other top performers are Auction Technology Group, which was borderline positive on rating. It has a niche business consolidating online auction marketplaces but the concern was the strength of underlying growth. Since mid-November, ATG posted FY24 results that showed muted growth but a jump in operating margin. That bumped up the share price but it’s not enough to change the neutral view for now. Burberry is a turnaround story that’s always had the potential to jump up. Its spring collection was well-received, and a new CEO is making the right moves, but I’m happy to stay away.

Of the biggest losers, three had negative ratings. Aston Martin seems to perennially underperform and posted some ugly FY24 results. Ashmore is a mid-sized active manager with little to differentiate itself, and AO World operates in the tough world of consumer durable goods. B&M is neutral but borderline negative given competition in UK discount space. I’m not worried about any of them.

The one that does deserve a closer look is Bloomsbury. There’s been no news absent a two-sentence statement at the end of January announcing a new distribution deal with Amazon, and that “the Board reiterates confidence in consensus expectation”. What’s driving the stock price down is unclear, although it may be partly AI-related. The price turned down in mid-January after the DeepSeek release shook-up perspectives on how rapidly – and at what cost - AI could be utilised. Sticking with it for now but will keep a close look on the next results and take a serious look at AI impact in any future review.

What I’ve learned

More important than any short-term change in price is what I’ve learned along the way. Here’s five takeaways from A to D.

1. It takes time and I’m easily distracted

Let’s start with the obvious. I’m 40 companies in and it’s taken me four months, so at this rate I’ll be through the index in 16 months, by which stage half of it will be outdated. That’s partly because when you’re starting with few prior assumptions on a business even a quick review takes time. It’s also partly because I’m easily distracted and start writing about steel tariffs and the like. I don’t think my future lies in detailed research.

2. There are certain companies I’m drawn to

On the positive side, the process has helped clarify some of the attributes I like in a business. Steady growth, a somewhat boring business model, a track record of delivering for shareholders. Turnaround stories or value plays aren’t my thing. On growth, I like to distinguish between non-consumer and consumer sectors. For non-consumer I’m looking for global market leaders that can expand internationally; for consumer I’m looking to the opposite. UK market leaders with a judicious attitude to international expansion given how many firms have been burned by this in the past.

3. There’s dross in the FTSE 250 but good companies too

I started off thinking that UK equity indices needed a major shake-up, and I believe that more now. As well as shaking out closed-end funds, there’s a case for quality over quantity. As a mid-cap index, the FTSE 250 just feels too large, and the worry is that good firms get lost. Market caps are ~£500m at the lower end, which is firmly small cap territory. Indices are to some degree a marketing tool – professional investors can customise exposures as they wish - but they’re important for retail flows. I like the idea of a FTSE 50 and a FTSE 150. The MSCI UK Index, which covers the large and mid-cap segments, contains only 78 constituents.

4. You can sense the companies that care

One thing that’s really struck me is that you can sense the companies that care about getting their story told and selling their business to investors - a theme that came up in my previous post on the future of equity research. Rather than just throwing up the annual report and interim statements, the companies that care put up the recording and transcripts of earnings calls, host a capital markets day, make the recordings of these sessions accessible to all, put up a simple presentation on the investment case for the business. I think this evidence of a level of ambition for the firm.

5. Ownership is important

One of the things I like to look at is the current roster of shareholders. The FTSE 250 contains some small-cap names and the minimum free float for inclusion is only 10%, meaning 90% of outstanding shares don’t need to be traded and you can still make the cut. That’s low. It used to be 15% before 2012, was increased to 25% between 2012 and 2022, and in 2022 it was lowered to 10%. For comparison, inclusion in the S&P 500 index requires a free float of 50%; although the Russell based US indices require only 5%. Whatever the cut off is, it can mean some companies still have large founding ownership stakes e.g. Alpha Group, Bakkavor. That could be good or bad, but I like to know. Similarly, I like to see who’s on the institutional register. Is it your typical roster of UK asset managers or is the company attracting international attention (typically US). The latter is a good sign for me.

So, those are the big takeaways from A to D. I’ll do another update in a few months when I’m half way through. In the meantime, keep looking at the page for firm updates and add your own comments on the companies covered!

A to Z of the FTSE 250