Since October 2019, the FTSE 250 has delivered a return of 16.4%, or 3.1% a year. A £10,000 investment five years ago would be worth £11,640.
But during this period, it’s been volatile. The years of the pandemic (2020) and rampant inflation (2022), saw the index lose 4.6% and 17.4%, respectively.
In contrast to this, in 2019, it increased by 28.9%.
If I’d bought a tracker fund, I’d have achieved a return identical to these figures. Alternatively, I could have purchased all 250 stocks. But it would have been necessary to put a different amount in each depending on their market cap. That’s because the FTSE 250’s weighted, with the most valuable stocks influencing the overall index more than the smaller ones.
However, although a return of 3.1% is reasonable, it’s not a stellar performance. For example, the FTSE 100‘s increased by an average of 6% a year, since 2019.
And there’s a wide disparity between the winners and losers.
Over the past five years, 110 stocks on the FTSE 250 have fallen in value and 24 have doubled.
Biggest and best?
One FTSE 250 stock that I like the look of is Alliance Witan (LSE:ALW).
In October, it acquired the assets of Witan Investment Trust (WIT). As I write (14 November) it has the largest market cap (£5.09bn) on the index. I think it will be promoted to the FTSE 100 at the next reorganisation.
The trust’s top 20 holdings contains some familiar names — Microsoft, Amazon, Alphabet, Meta Platforms and Nvidia.
But I like the fact that it hasn’t put all of its eggs into the technology/artificial intelligence basket. At 31 October 2024, 78.9% of the fund was invested outside of the sector.
Other large holdings include Visa, UnitedHealth Group and Novo Nordisk.
On the plus side
And now could be a good time for me to invest.
The trust trades at a 4.1% discount to its net asset value. This is similar to a shop having a sale, offering nearly 5% off all its products. I could buy into 236 companies at a discount to their prevailing fair value.
I also like the fact that nearly all of the trust’s investments are in listed companies.
Some rivals — like Scottish Mortgage Investment Trust — have a large proportion of unquoted companies in their portfolios. These are harder to value and could potentially distort their valuations.
And although Alliance Witan’s dividend isn’t amazing — the stock’s presently yielding 2.1% — it has increased for an impressive 57 consecutive years. Nothing’s guaranteed when it comes to investing, but I see no reason why this shouldn’t continue.
Prior to being bought, WIT had increased its payout for 49 years in a row.
Reasons to be cautious
But there are potential risks.
The majority of the portfolio is invested in US equities. And although American stocks have done well since the election, if Donald Trump pursues his protectionist policies, inflation is likely to rise and interest rates could stay higher for longer.
Also, the fund manager charges a fee of 0.61%. This is higher than, for example, SMT’s 0.35%.
However, because of Alliance Witan’s wide diversification across many sectors — and its impressive track record of dividend growth — I’m going to put the stock on my watchlist for when I’m next in a position to invest.
