Panic not, FTSE 250 fans; the recent spate of profit warnings among mid-caps does not mean the party’s over for second-liners.
A little secret among clued-up investors is the out-performance of the FTSE 250 over the last ten years compared to its better known big brother, the FTSE 100 index.
The mid-cap measure is up 72% over the last 10 years, while the FTSE 100 is up a mere 14%, reflecting, in part, the greater vitality of the mid-caps and the greater susceptibility to global trends of the Footsie big beasts, especially the resource stocks.
Now, in the post-Brexit vote environment, things are looking a bit cloudier for UK PLC, and that has coincided with some profit warnings from high profile second-liners such as cyber-security specialist NCC Group PLC (LON:NCC) and defence firm Cobham PLC (LON:COB).
Laith Khalaf,senior analyst at broker and wealth manager Hargreaves Lansdown reckons “a mixture of the macro and the micro” is responsible for the disappointing updates at NCC and Cobham.
With Cobham issuing its second profit warning of the year and some senior directors on their way out, there were “obviously some underlying issues there that have been, perhaps, highlighted by difficult trading conditions,” Khalaf said.
In the case of NCC, it was “probably a case of some company-specific problems,with contracts being deferred or cancelled,” the analyst continued.
''In terms of the companies that we've seen issuing profit warnings I don't think there's any rhyme or reason in terms of the sectors that have perhaps been hit. You could make a case that there have been certain sectors which have been struggling more than others since the EU referendum vote and probably the particular two which come to mind are the airline industry and also the retailers'', Khalaf added.
Both indices are still near their record high, and though the FTSE 250 index is not as internationally-focused as the FTSE 100, around half of the companies’ revenues come from overseas, so they will have benefited from sterling’s plunge, Khalaf asserted.
On top of that, the big blue-chips have also had their share of profit warnings, from the likes of Anglo-Dutch Reckitt Colman PLC (LON:RB.) and low-cost airline easyJet PLC (LON:EZJ), and Khalaf reckons this is just a case of the typical ebb and flow from a quarterly reporting season.
In Khalaf’s view, it is worth sticking with the FTSE 250 stocks.
“They probably have more space to grow in the various industries into which they are plugged into,” he concluded.