2022 has not been kind to the FTSE 250 index so far. It has fallen 16% and is now 14% down over the past 12 months. That compares badly to the FTSE 100, which has grown 5% in a year. But both contain UK shares exposed to wider economic trends.
So why is the FTSE 250 suffering like this – and is it a buying opportunity for my portfolio?
Painful fall
I think the reason the FTSE 250 has fared worse than the FTSE 100 lately reflects the different make-up of the two indices. The secondary index consists of smaller companies, many of which are still at a growth stage. The flagship FTSE 100, by contrast, includes a lot of companies that have been established for a long time and have mature businesses.
The split is not always as simple as that but, in broad terms, that is why I see the FTSE 250 as more of a growth pick than the FTSE 100. But in a bleak economy, growth shares often suffer. Investors are less attracted by the prospects of jam tomorrow and instead may prefer to put their money into proven businesses that have shown before they can make it through recessions.
Using that approach, I understand why the FTSE 100 may look more attractive to some investors than the FTSE 250.
Potential buying opportunity
However, the index contains several hundred shares. Even if the index itself has been moving down, does that mean the business outlook for all of the firms is getting worse? I do not think so.
For example, health landlord Assura is down 12% in the past year. But I think the demand outlook for healthcare property rental remains strong. The Assura dividend continues to grow. Computacenter has fallen 7% in a year, even though revenues and profits grew strongly last year. Meanwhile, ITV is 38% cheaper than a year ago, despite strong growth as seen in last week’s interim results. Here, earnings per share doubled compared to the same period last year.
Of course, the companies all face risks. A corporate spending slowdown could hurt revenues at Computacenter, while the cost of new services could eat into profit margins at ITV. Assura’s balance sheet could suffer if property prices fall.
But even bearing in mind the risks, I see some attractive opportunities in the FTSE 250 for my portfolio right now.
Buying the dip in the FTSE 250
That is where I think the approach of picking individual shares to add to a portfolio can be helpful. As the FTSE 250 has tumbled, some of the shares in it potentially offer me good value. But not all of them do. So rather than simply buying shares that look cheap purely on financial measures, I am looking for companies I think have a strong outlook and that trade at an attractive price.
From the FTSE 250, that recently led me to add ITV to my portfolio. Hopefully, I can find some great opportunities to help build my future wealth.
