If I were a beginner investor with £1,000 to invest, the first place I’d start looking is the FTSE 250.
The FTSE 100 is comprised of the largest 100 listed companies in the UK, and the FTSE 250 makes up the following 250 most prominent stocks. The FTSE 350 is both of these indexes combined.
I’d start looking for investments in the FTSE 250 as a beginner because this index is full of companies with more exposure to the UK, and smaller firms usually have brighter growth prospects.
That said, this might not be a strategy that’s suitable for all investors. Bigger companies tend to be less risky investments because it’s easier for them to acquire financing and find skilled managers. On the downside, more prominent organisations can find it hard to grow. So there’s atrade-off to be had here.
Still, I believe there are some desirable opportunities in the FTSE 250. That’s why I would invest £1,000 as a beginner in this index.
FTSE 250 investments
I’d invest my money in market-leading enterprises such as IT provider Kainos Group. This company recently reported a 31% increase in revenue for its financial year ended 31 March.
Diluted earnings per share also leapt 130% for the period, and the total value of cash on the balance sheet nearly doubled to £81m. I think there’s a strong chance this level of growth could continue as the world becomes more interconnected and businesses turn to Kainos to help them deal with IT systems.
However, this sector is also incredibly competitive. Therefore, there’s no guarantee the group’s revenue will continue to grow at a double-digit rate indefinitely.
I also wouldn’t invest all of my £1,000 in just one FTSE 250 stock or one sector either.
Diversification
Another rapidly growing business I’d buy for my portfolio is Liontrust Asset Management.
The specialist fund manager is currently benefiting from an increase in the demand for Environmental, Social and Governance (ESG) investments, where it’s carved out a specialist niche for itself.
Assets under administration doubled last year, and adjusted profit before tax rose 69%. If Liontrust can maintain its edge in the market, I think it has tremendous potential over the next few years.
The sector is competitive though, and while Liontrust has a strong reputation in the market, this shouldn’t be taken for granted. The company may begin to struggle if it doesn’t invest in growth.
The final stock I’d buy in my FTSE 250 portfolio is Biffa. Waste disposal is a niche and complex industry. But this business has the size, experience and scale required to dominate the market.
The company might not be as exciting as fast-growing tech stocks. Still, I reckon its competitive advantages should help it grow steadily in the years ahead.
Risks to growth include additional regulations and higher costs, which could eat away profit margins.