Market Report: The mid-cap index beats its big brother
Saturday 13 October 2012
Big isn't always beautiful. Yesterday was the 20th anniversary of the FTSE 250 and, looking back over the two decades since the index was created, it is worth noting that it has proven a better bet than its blue-chip big brother.
Since the mid-cap index's creation it has grown five times its starting level, compared to the FTSE 100 which over the same period has not much more than doubled.
Paul Kavanagh, partner at broker Killik Capital, believes this "reflects the fact that it largely avoided exposure to financials – banks are always too big."
Many punters look to the FTSE 250 as a good measure of how the UK economy is getting on. The FTSE 100 is far too foreign – all those global miners skew its performance – whereas the mid-caps are seen as a better representation of Blighty.
The indices had something in common yesterday though – they both struggled to hang onto Thursday's gains, after being dragged down by engineering stocks following a warning on revenues from Morgan Crucible.
Morgan sunk to the bottom of the FTSE 250, falling 28.5 to 227.3p, while engineers GKN, down 7.1p to 209.9p, and IMI, 21.5p lower at 904p, were stuck near the foot of the benchmark index.
The Footsie itself dropped 36.43 points to 5,793.32 as eurozone debt worries came into focus again, while the FTSE 250 retreated 60.13 to 11,838.26.
Europe might be in dire straits, but apparently we all still want clean hair and clothes. The analysts at Goldman Sachs think it remains a good time to buy consumer goods giant Unilever – whose brands include Persil and Radox – noting that industry data "supports a continuation of first-half 2012 growth rates in Europe, with continued share gains in shampoo and laundry".
However, this was not enough to prevent the group closing unchanged at 2,304p.
It has not been a great week for the defence industry, with the proposed merger of BAE Systems – which yesterday edged down 1.4p to 327.1p – and Franco-German group EADS crashing and burning on Wednesday.
But there is one potential defence takeover that still has a chance of taking off. Carlyle Group has received a second extension to the "put up or shut up" deadline for it to decide whether to make a firm offer for defence specialist Chemring – the US private equity firm has another month for bid talks.
Back in August, Chemring admitted it had received a "highly preliminary expression of interest" from Carlyle. Since then the shares have had a bumpy ride. After Carlyle's interest was disclosed, Chemring hit investors with a profit warning that sent the shares plummeting, and fears grew that the talks would come to nothing. However, yesterday's news saw them climb up 7.4p to 342.7p.
Having initially jumped after making its debut on Thursday, motor insurer Direct Line was not able to maintain its momentum. The group slipped back 1.5p to 186.5p, although that's still well above the 175p it floated at.
Centrica, the owner of British Gas, has come under fire for the news that it is raising its prices, and shareholders will not have been too happy with its admission that "despite the increase in prices… British Gas residential profits in the second half of 2012 are expected to be around 15 per cent lower than for the same period of 2011". The shares leaked 0.9p to 333.7p.
Speculation that WH Smith (5p higher at 636p) boss Kate Swann, who revealed on Thursday that she was leaving the retailer, could end up at Home Retail has not impressed analyst Nick Bubb. The retail guru scotched the rumours, saying "successful executives don't usually go back to companies they've worked at before", and the owner of Argos and Homebase finished 0.7p worse off at 104.3p.
Shares in Bumi continued to surge in the wake of the Bakrie family's proposal on Thursday to divorce from the Nat Rothschild-backed coal miner. The group soared up 21p to 280p, meaning it has added more than 50 per cent in just two trading sessions.
Down among the small-cap stocks, FlyBe flew up 3.12p to 53.38p after revealing that trading had steadied. The airline – which also announced it would start flying a third of Finnish carrier Finnair's routes this month – issued a profits warning back in August.
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