The FTSE 250 is home to some of the best up-and-coming British businesses. And as every astute investor knows, acting early and choosing long-term winners can yield phenomenal wealth-building returns. But how much money have investors actually made with the UK’s flagship growth index?
Crunching the numbers
Small- and mid-cap stocks can deliver explosive gains. And there are plenty of examples of this happening within the FTSE 250. For example, Games Workshop (LSE:GAW) joined the index in September 2017. Since then, shareholders have reaped a jaw-dropping 830% in total return, making it one of the best-performing UK shares on the market.
To put this into perspective, a £20,000 investment’s now worth over £186,000! But sadly, not every FTSE 250 stock has been so fortunate. And in the last five years, the overall growth index has actually underperformed when compared to the FTSE 100.
In that timescale, passive index investors have still earned a positive total return of 43.5%, or 7.5% on an annualised basis. But that pales in comparison to the FTSE 100’s 13.3% annualised gain over the same period. And in terms of money, that’s the difference between transforming a £20,000 investment in August 2020 into £28,712 and £37,340.
Digging deeper, this underperformance appears to predominantly stem from the FTSE 250’s higher dependence on the UK economy. It’s no secret that economic growth in Britain has proven elusive in recent years compared to countries like the US. And with larger businesses having greater exposure to international markets, it’s not surprising to see them outperform.
Stock pickers have the advantage
As Games Workshop has demonstrated, while the overall FTSE 250 index has fallen behind, it still contains market-beating winners. Finding such successes is obviously easier said than done. But Games Workshop still appears to have plenty of growth potential even after joining the ranks of the FTSE 100 in December 2024.
The expansion of its licensing activities for video games and streaming is helping expose more consumers, particularly in North America, to the world of Warhammer.
This creates new avenues for individuals to engage with the hobby either through collecting, painting, playing, or all three. While promising, it’s important not to ignore the potential cultural risk surrounding table-top gaming, which may not resonate as well with younger generations. There’s also the threat of at-home 3D printing that could limit the company’s pricing power in the long run.
Finding the next Games Workshop
Even after its tremendous growth, Games Workshop continues to look like a solid investment, in my eyes. But is it likely to deliver another near-10x return within five years? Probably not. After all, it now has a market-cap of over £5bn.
Luckily, the FTSE 250 always has multiple stocks with this growth potential – it’s just a matter of finding them. And in my experience, one of the best ways to do that is to zoom in on the companies with a unique niche, proven business model, and a wide competitive moat.
There are never any guarantees in investing. But hunting for this rare combination can quickly eliminate duds from consideration and potentially reveal what could be the next Games Workshop in 2025.
