Is the FTSE 250 OK?

For a long time, the FTSE 250 was seen as a dynamic and forward-looking stock market index. The selection of 250 of the best British businesses contrasted with the larger, more defensive and more globally minded companies on the FTSE 100. Perhaps most crucially, the returns were much better. While the FTSE 100 was returning 7%-8% yearly, the FTSE 250 hit averages of 11% over decades.

All of that seems to be changing. The FTSE 250 has struggled of late, especially since 2017. Last year exemplified the trend. While 2025 was a banner year for stock markets across the globe – and the bigger brother FTSE 100 booking a 22% increase plus dividends – the FTSE 250 trudged to a less impressive 9% return (also excluding dividends).

What’s going on here? Is everything alright with the FTSE 250? And are there any bargain basement opportunities lurking amid the malaise?

Brakes on

As will come as no surprise, this very British index is dealing with some very British problems. The FTSE 250 is often considered a barometer of the UK economy, and this means that when the economy struggles then so does the index. That the UK has had anaemic growth for close to two decades now and that has put the brakes on the markets.

Other UK-specific issues enter the picture too. High energy costs hurt industrial companies like Elementis. A cost-of-living crisis cuts into disposable income, which hurts companies like Saga. And higher staffing costs are hurting the big FTSE 250 employers like Greggs.

All in all, for the FTSE 250 to turn it around, then we’re probably going to need to see the country turn it around too. I think we’ve all got our fingers crossed that things start picking up. But even still, a collection of 250 different companies is going to have a few gems that will possibly surge in the years ahead.

Struggles

One area that might come as a surprise to be struggling is housebuilding. Given surging house prices and high demand for new housing, it’s odd indeed to see Taylor Wimpey struggling (LSE: TW.). The share price is down 27% over the last five years.

What’s the problem here? Well, along with all the reasons mentioned above that are plaguing the FTSE 250 and the UK in general, housebuilders have an extra factor to contend with: interest rates. When borrowing is costlier then folks take out fewer mortgages.

While rates have stayed elevated in the last few years, they are beginning to come down. The latest data on jobs and inflation suggests we will have more rates cuts this year, possibly bringing the rate down to 3% by the end of 2026. That could kickstart the sector.

Housing is notoriously cyclical, so I wouldn’t be surprised to see a turnaround sooner or later. In the meantime, investors may like the look of one the largest dividends going. An 8% yield is forecast over the next year. I think it’s worth considering.

The post Is the FTSE 250 OK? appeared first on The Motley Fool UK.

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John Fieldsend has no position in any of the shares mentioned. The Motley Fool UK has recommended Elementis Plc and Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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