What a week it’s been for investors. Over five days, the FTSE 100 is down 8.4%, while the FTSE 250 dropped 6.3%. This leaves both indexes down over one year, by 0.4% and 7.6%, respectively.
Notably, the FTSE 100 has outperformed the FTSE 250 for some time. Over five years, the Footsie has risen 35.4%, while the mid-cap index has gained 11.8%. Furthermore, Footsie firms pay much higher dividends than mid-caps, with the blue chips’ cash yield nearing 4% a year.
As a long-term value/income investor, I often scour the blue-chip index for undervalued stocks. I hunt among the mid-caps much less frequently. But given that the FTSE 250 is one of the cheapest stock-market sectors around, I’m now paying it much more attention.
A FTSE 250 faller
Reviewing the mid-cap market earlier today, I spotted one stock that has lost considerable value. The shares in question are those of asset manager Man Group (LSE: EMG). Man is the world’s largest listed hedge-fund manager. It offers actively managed investment funds in public and private markets to institutional and private investors.
Man’s origins date back to in 1783, when it started out as a commodity trader. Over centuries, it grew to become a leading UK provider of algorithmic and trend-following funds. At end-2024, it had $168.6bn of financial assets under management or administration. However, this was 5.4% below the $178.2bn recorded in mid-2024.
Man’s share price currently stands at 169.8p, valuing this business at £2bn. At their 52-week high, Man shares peaked at 278.8p on 10 April 2024. They have since plunged by 39.1% in 11 months. At their one-year low on Monday, 7 April, they dipped to 161.8p before recovering. The share price remains close to the bottom of its trading range.
Too cheap?
My wife and I own Man shares in our family portfolio, having paid 214p a share in August 2023. To date, our paper loss is over a fifth (-20.8%), but we have no intention of selling at current price levels. Also, our loss is partially offset by Man’s generous cash dividends — what first attracted me to this stock.
After steep price falls, this FTSE 250 share trades on just 8.6 times trailing earnings, delivering an earnings yield of 11.6%. Therefore, Man’s bumper dividend yield of 8% a year — over twice the FTSE 100’s cash yield — is covered 1.45 times by earnings. I’d prefer dividend cover closer to two, but this is some margin of safety.
In 2024, Man produced a pre-tax profit of $398mn, 43% ahead of 2023’s result. This performance allowed the group to lift its dividend and kickstart $100m of share buybacks. Then again, given financial markets’ recent ructions in the ‘Trump/tariffs slump’, 2025 is shaping up to be a much tougher year for asset managers.
Of course, things could well get tougher for Man shareholders, especially if the group’s asset base falls due to market meltdowns. Even so, I’m optimistic that the group will get through this latest shake-up, so I view this FTSE 250 stock as deeply undervalued!
