Why I think the FTSE 100 and FTSE 250 will make successful comebacks

I’m optimistic about the future prospects of the FTSE 100 (INDEXFTSE:UKX) and FTSE 250 (INDEXFTSE:MCX) despite uncertain outlooks.

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The performances of the FTSE 100 and FTSE 250 have improved significantly in 2019. After a difficult second half of 2018, which saw them decline as a result investor concerns about the global economic outlook, they have delivered surprisingly strong performances.

Looking ahead, there could be significant growth potential on offer from both indices. They appear to offer low valuations, could benefit from improving economic conditions, and have track records of delivering higher highs over the long run. As such, now could be a good time to buy stocks across both.

FTSE 100

With the FTSE 100 generating the majority of its earnings from outside of the UK, it may experince less of an impact by the outcome of Brexit than is the case for the FTSE 250. As such, should the next few weeks or months become increasingly uncertain for the UK’s economic outlook, the FTSE 100 could gain a boost. Doubts about the UK economy could cause sterling to weaken, which may lead to a positive currency translation benefit for their stocks.

In the long run, the index also appears to offer growth potential. It has a dividend yield of over 4% at the present time, which suggests it offers a wide margin of safety. Other major global indices such as the S&P 500 have dividend yields of around half the FTSE 100’s level. While this doesn’t necessarily mean the UK’s large-cap index will double over the next couple of years, it does suggest it could be relatively cheap.

With the index having always recovered from its various bear markets of the past, it has a solid track record of impressive total returns. As such, a continued recovery could be ahead over the coming years.

FTSE 250

While the FTSE 250 is more dependent on the UK economy for its income than the FTSE 100, its valuation suggests investors are expecting further uncertainty from the Brexit process. However, it also has a dividend yield of over 3%, which suggests it offers good value for money.

Although there are no guarantees as to how Brexit will progress, the UK economy seems to be in a rather strong position. Jobs growth is high, inflation is low, and even though consumer confidence is weak, the economy is still growing at a faster pace than Germany and Italy. As such, there could be a number of mid-cap shares offering growth at a reasonable price at the present time.

As with the FTSE 100, the FTSE 250 has a solid track record of growth. In the last 10 years it has delivered an annualised total return of around 15%. That’s come despite the potential risks associated with Brexit over the last few years. As such, while the near term could be volatile, the index’s long-term investment potential appears to be favourable.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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