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Over the past week, the FTSE 100 has fallen by 8%. In contrast, the FTSE 250 is only down 6%. Of course, both indexes are lower over this period. But in terms of relative outperformance, the difference supports my suspicions. I think the FTSE 250 will continue to do better than the main UK index for the rest of this year.
UK versus global exposure
It boils down to the type of businesses contained in each index. The broader FTSE 250 is made up of smaller, domestic companies. More of these firms trade just in the UK, or have limited exposure to the rest of the world. The FTSE 100 contains more international businesses. Some constituents hardly have any operations in the UK, but use it as a base for headquarters.
As a result, the FTSE 100 is more impacted by global events than the FTSE 250. The tariff announcement from President Trump last week is a perfect example of this. The higher import levies negatively impact companies that trade with the US. Yet for domestic UK businesses, it doesn’t really matter too much. Further, for companies that deal with China from the UK, terms of trade could get even more generous as China and other nations look to offset trade deficits with the US with more trade to other countries.
Bringing all this together, the stock prices of some FTSE 250 companies have performed better than the international FTSE 100 peers. I believe this theme could continue, as I don’t believe the tariffs around the world will be rolled back anytime soon. It’s a regime shift that I think we have to be comfortable with being here to stay.
The main risk to my view is if the UK economy materially starts to underperform this year. In that case, businesses with revenue overseas could be less impacted than local companies.
A domestic star
To this end, an investor might want to consider buying Greggs (LSE:GRG) shares. The well-known UK-based bakery chain doesn’t trade in America, or anywhere else in the world except the UK!
Of course, this doesn’t mean the business isn’t exposed to outside pressures. The share price is down 40% over the past year. Part of this is down to weaker consumer confidence. People cutting back on grabbing food out can be attributed to UK-specific factors, but it can also be due to worry about what they see happening around the world.
Greggs has struggled with cost inflation, such as changes in the National Living Wage and employer’s National Insurance contributions. This remains a risk going forward.
Even with all of this, I still see it as an appealing stock. Results from 2024 showed revenue topping £2bn for the first time, up 11.3% from the previous year. Underlying profit before tax rose by 13.2%. According to the December 2024 YouGov Brand Health survey, it’s the number one food-to-go brand for value in the UK.
Given its domestic exposure and that it is operating with a proven profitable track record, I think it’s an idea for investors to consider right now.
