Fund managers response

The FTSE 250 and Small-Cap indices raced ahead of the FTSE 100 in 2003 and the valuation gap between the two indices closed. There remains, however, plenty of value to be found in the FTSE 250. Strong consumer and Government spending continue to underpin future growth in the mid-cap area. Interest rates, inflation and unemployment in the UK are still at relatively low levels. This should help support the strong housing market and consumer spending. In addition, the Government has pledged large amounts of public money to rebuild our roads, railways and hospitals. Many of the companies that will benefit from these key themes can only be found in the FTSE 250 index. On a longer-term view, the FTSE 250 will always be a good hunting ground to find growing companies with rising share prices that are destined for the FTSE 100. Indeed, most companies entering the large-cap index have already made the majority of the gains in their share price and once they arrive in the big league, the price rise tails off. Take, for example, the pharmaceutical company Shire. It entered the FTSE 250 index in mid-1998 at around £4 and over the next two years it rose steadily in price to more than £14 when it entered the FTSE 100 in late 2000. Two years later it was back at around £4. Two stocks that have had a strong run, and are poised to enter the FTSE 100, are copper miner Antofagasta, which rose nearly 70% in 2003, and gambling stock William Hill, which has added 90% to its share price in the last year. The FTSE 250 index also provides a rotation of stocks to buy. In the past three calendar years, the list of names in the top 10 stocks of the FTSE 100 has not changed, while only four companies have appeared more than once in the top 10 list of the FTSE 250. As for the size of the fund, the Schroder UK Mid 250 fund has grown to more than £650m in the past four years and performance has not been affected. I am comfortable that the size of the fund will not be an impediment to future investment success.