Historically, the FTSE 250 has been more volatile than the FTSE 100. When the mood is upbeat, the smaller-cap stocks often climb faster than their bigger cousins. And the converse happens in the dips.
Looking back over the past five years is enough to show this. The FTSE 250 fell further than the FTSE 100 during the pandemic crash.
Then it climbed way higher in those 2021 days of premature optimism. And now we’re suffering high inflation and interest rates, it’s underperforming once again.
Bull market
I don’t know when the next bull market will come, but I’m convinced we’ll get one. And I reckon a FTSE 250 investment could give me the edge when it does.
But there are so many different stocks to choose from — I mean, there are around 250 or so.
So I have a couple of investment trusts on my list of smaller-cap favourites. And, right now, I like the look of Henderson Smaller Companies Investment Trust (LSE: HSL).
It’s on a forecast dividend yield of only a modest 3.6% at the moment. But it’s raised its dividend every year for 20 years in a row now.
FTSE 250 holdings
What most attracts me is that this trust invests in some individual FTSE 250 stocks that are themselves on my smaller-cap shortlist.
It holds housebuilder Bellway, for example. And specialist mortgage lender OSB Group is there too. Their business might be related, but I’d rate builders and financial stocks among my best buys now.
Tech systems developer Oxford Instuments is in the mix too. Overall, there’s a nice bit of diversification across income and growth stocks from a range of sectors.
Real Estate
My second pick is Primary Health Properties (LSE: PHP). This time it’s a real estate investment trust (REIT). But its income is more geared towards the health business, and forecasts indicate a 7.3% dividend yield.
Primary Health owns and leases GP surgeries and health centres in the UK and Ireland.
The share price has been falling in 2023, presumably due to real estate weakness. But I’m seeing no weakening in demand for health services. Property market troubles might bring some risk, mind.
There could be political risk too, centred on using the private sector for NHS business. But I think we’re way too far down that track to turn back now.
There’s also a fair bit of debt here, though that’s not uncommon in a real estate business.
Smaller-cap risk
What I’ve chosen here has more exposure to interest rates than most. And one alternative might be to buy a FTSE 250 tracker instead. That would diversify away the risk a bit further. But where’s the stock-picking fun in that?
I think the bigger risk here, especially with diversified investment trusts, is future stock market weakness. Should the economy not start to pick up soon, FTSE 250 stocks could head into a longer downturn.
But a bull market will come sooner or later. Won’t it?
