FTSE 250 tracker funds are a popular investment. With these products, investors get exposure to the 250 largest London Stock Exchange-listed companies outside the lead FTSE 100 index.
How much would a £10,000 investment in one of these trackers a decade ago be worth now? Let’s look at some performance figures to find out.
Tracking the index
There are a number of different FTSE 250 trackers available today. But to keep things simple, I’m just going to look at the performance of the Invesco FTSE 250 UCITS ETF Acc (LSE: S250).
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There are a few reasons I’ve chosen this particular fund. Firstly, it’s been around for over 10 years. Some other products, such as the Vanguard FTSE 250 UCITS ETF Accumulating fund, haven’t.
Secondly, this tracker is an ‘accumulation’ fund meaning its performance includes reinvested dividends. Over the long term, these can boost returns significantly.
Third, buying an ETF (exchange-traded fund) is typically more cost effective than investing in an index fund such as the HSBC FTSE 250 Index Accumulation fund as investors typically pays lower annual charges to their provider.
10-year performance
Now, 10 years ago, the Invesco FTSE 250 UCITS ETF Acc had a share price of 9,934p. As I write this (on 8 December) however, its share price is 15,188p.
Running a simple percentage gain calculation, the 10-year return is around 53% (or about 4.3% a year on an annualised basis).
This means a £10k investment a decade ago would now be worth about £15,300 (ignoring trading commissions and annual fees).
Return comparisons
Is that a good return? Well, it’s not terrible.
It’s most likely higher than I would have received from cash savings over that period (for most of the period savings accounts were paying less than 1% per year).
But if I’m honest, it’s not a brilliant return. Ultimately, I could have generated much higher returns elsewhere.
Here are some other approximate returns over the same period:
- iShares Core S&P 500 UCITS ETF USD (Acc) – 285%
- iShares Core MSCI World UCITS ETF USD (Acc) – 200%
- Fundsmith Equity – 300%
- Apple shares – 870%
- Tesla shares – 2,500%
- London Stock Exchange Group shares – 520%
- JD Sports Fashion shares – 1,150%
Diversification is smart
I think the takeaway here is that it’s really important to own a diversified investment portfolio.
FTSE 250 trackers can definitely play a role in a portfolio. In this index, there are some fantastic up-and-coming companies.
However, like any index, the FTSE 250 can underperform at times. So I wouldn’t want to have a huge allocation to it.
If I had half my portfolio in a FTSE 250 tracker and the index continued to deliver returns of just over 4% a year over the next decade, I could be looking at less money in retirement.
By taking a diversified approach to investing, and allocating capital to a range of different funds, as well as some individual stocks that have the potential to beat the market over the long run (The Motley Fool can be an excellent source of ideas here), investors might be able to generate much stronger returns.
