I reckon the FTSE 250 index could be a well-stocked hunting ground for companies likely to perform well in the next market bull run.
There are many growing businesses in the second index. As the name suggests, it’s home to the 250 largest public companies listed on the London Stock Exchange after those that qualify for the FTSE 100. And businesses earn their place in both indices according to their market capitalisations.
Companies with growth potential
Sometimes the constituents of the FTSE 250 are declining enterprises that have been demoted from the lead index. But many are successful outfits with plenty of growth still under the hood. And one day many will likely achieve a position in the UK’s top 100.
As a general rule of thumb, I like to think of the FTSE 100 as leaning more towards dividends paid by mature companies. And to me, the second index leans more towards growth. I feel both are important. So I invest in tracker funds following both indices every month as part of my diversified portfolio.
However, a big part of my investment strategy involves targeting the shares of individual companies. And although nothing is guaranteed, I do so in the pursuit of higher rates of growth than the broad index can deliver.
There’s nothing earth-shattering or innovative about my strategy. The teachings of billionaire investor Warren Buffett have been a huge influence on me. So, like him, I consider myself to be a lifelong investor. And I expect to hold shares for periods measured in years rather than weeks or months.
Looking for a durable competitive advantage
By devouring Buffett’s writings and media appearances, I’ve learnt to try to identify businesses with a durable competitive advantage in their trading markets. And I look for strong company finances, decent quality indicators and a fair valuation. But one of the most important factors for me is the presence of a clear runway for multi-year growth. And that’s why I’m often hunting in the FTSE 250.
The top of my watchlist features names such as trading platform provider and financial technology company IG. And I’ve got a keen eye on information technology infrastructure business Computacenter. I’m also looking closely at branded food business Premier Foods among several others.
But those three are among several decent-looking possibilities. And I’m doubling up on my research efforts in order to be ready to pounce and buy some of these stocks if the markets offer compelling valuations.
All shares carry risks as well as positive potential. And lower share prices are often justified by deteriorating immediate prospects for some enterprises. Although that’s not always the case. Sometimes investor sentiment can cause share prices to fall when the move may not be justified by the underlying performance of a business.
However, I’m hopeful that my long-term approach to investing will produce a positive return in the years ahead. By looking past immediate challenges, I’ll be giving the businesses behind my shares time to recover from economic headwinds now.
