Each week, a professional investor tells us where she’d put her money. This week: Georgina Brittain, JPMorgan Mid Cap Inv. Trust.
Over the last 30 years, the FTSE 250 (or mid-cap) index has outperformed the FTSE 100 by almost three times. It is one of the best-performing stockmarket indices globally. As an investor in this area of the UK market for more years than I care to count, my enthusiasm about the prospects for medium-sized companies shows no signs of waning.
The outperformance of this area of the market is driven by a number of sustainable factors. For example, the FTSE 250 is home to a large number of growth companies, which should not come as a surprise. It is easier to grow your profits at 10%-20% per annum for a number of years if you are a medium-sized business than if you are a behemoth in the FTSE 100.
Mid caps tend to be fast growing, but they are sufficiently large to benefit from strong management teams, healthy balance sheets and good cashflows.
They also understand the importance that investors place upon income, so tend to pay good and growing dividends. There is also additional support for the mid-cap arena in mergers and acquisitions (M&A) activity. On average, over the last 15 years, more than 5% of the index gets taken over each year, which provides strong valuation support. If the stockmarket fails to value these firms correctly, external buyers have shown that they are willing to do so.
Despite the misconception that the FTSE 250 is purely a domestic index, more than 45% of the revenue of the constituent companies comes from outside the UK. Each of the stocks below has significant and growing overseas exposure. We believe they are all long-term winners.
Two technology stocks that we would highlight include Sophos (LSE: SOPH) and FDM (LSE: FDM). We read about cyber-attacks on a regular basis and Sophos is a global leader in providing IT security products and services to mid-market companies. FDM is an international IT services provider. While it is the number one IT graduate employer in the UK, it has expanded significantly in recent years and now produces 40% of its turnover outside the UK and Ireland.
Renishaw (LSE: RSW) is a world-class high-tech manufacturer with expertise in precision measurement. It has global reach, represented in 35 countries. This high-growth and high-margin business is benefiting from the global push towards automation, an area in which its measurement or metrology equipment is in great demand.
JD Sports (LSE: JD) is a leading European sports-fashion retailer that we have owned since it was an unknown small-cap company. While it has benefited and will continue to do so from the explosion of demand in “athleisure”, it has used its huge growth in profits and cash to roll out its stores in Europe and Asia.