Investors looking for ideas in 2025 should focus on the FTSE 250-listed companies, according to Swiss bank UBS.
It sees the UK economy offering a “selective yet compelling growth opportunity”, particularly for domestically focused small and mid caps (SMIDs).
SMIDs (small and medium-sized companies), are closely tied to domestic demand and are more responsive to shifts in the UK economy.
“Even modest GDP growth can drive meaningful returns in these companies, especially when supported by government policies," said UBS.
The UK government has earmarked over £100 billion (3.7% of GDP) for capital projects across infrastructure, healthcare, energy and homebuilding over the next five years – sectors where FTSE 250 companies are well-positioned to benefit.
Combined with the BoE's anticipated rate cuts to 3.25% by the end of 2025, these policies foster an environment ripe for reinvestment and expansion at lower financing costs.
Currently, the FTSE 250 trades at a discount to its quality-adjusted value due to the affordability of its high-quality stocks offering exposure to high quality and domestic growth at more reasonable prices.
“This undervaluation likely reflects lingering caution on UK assets post-Brexit, presenting upside potential as sentiment continues to improve,” said analysts.
With Trump set to return to the White House in January, If US trade policies tighten or the dollar strengthens, the FTSE 250's local orientation stands as a more stable and resilient alternative to more internationally exposed names, UBS added.