Imagine investing £5,000 at the start of 2025, only to see it grow by just over 9% by year-end – a far cry from the 21% surge of its larger sibling, the FTSE 100. That’s the reality for the FTSE 250, but here’s where it gets intriguing: while the index as a whole might not be the star performer, it’s a treasure trove of individual opportunities waiting to be uncovered.
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The FTSE 250’s modest 9% growth, including dividends, pales in comparison to the FTSE 100’s impressive 21% rise. In monetary terms, a £5,000 investment would now be worth £5,479 in the FTSE 250, versus £6,054 in the FTSE 100. But don’t let the index’s lackluster performance fool you – there are hidden gems within its ranks that deserve attention.
Index Investing: A Tale of Two FTSEs
Any index or company can have an off year, but the FTSE 250’s underperformance isn’t entirely random. One of its inherent quirks is that it consistently loses some of its top-performing companies, like Diploma and Games Workshop, to the FTSE 100. Explore the differences between the FTSE 100 and FTSE 250. These companies have been stellar investments over the past decade, but their success no longer benefits the FTSE 250 once they’ve moved on.
This dynamic makes me hesitant to invest in the index as a whole. However, I believe it’s an excellent hunting ground for individual businesses poised for growth. And this is the part most people miss: the FTSE 250’s structure, while limiting its overall performance, creates opportunities to identify rising stars before they graduate to the FTSE 100.
Spotlight on Growth: Gamma Communications
Take Gamma Communications (LSE: GAMA) as an example. Despite its stock faltering this year, the company has demonstrated resilience, and I believe its best days may still be ahead. Gamma specializes in providing wireless communication services for businesses, and 2026 could be a game-changing year. The UK is set to retire its copper phone network at the start of 2027, and Gamma is well-positioned to capitalize on this transition as a leading provider of cloud-based phone services.
A recent survey revealed that approximately half of UK businesses still rely on traditional landline networks, and a staggering 75% are unprepared for the impending switch. This presents a significant opportunity for Gamma, making it a compelling consideration despite its recent stock decline.
Risks and Rewards: The Copper Network Retirement
The planned retirement of the UK’s copper network in 2027 could be a major catalyst for Gamma, but it’s not without risks. One key concern is the possibility of delays – the switch has already been postponed once, originally slated for the end of 2025. Investors would be wise not to dismiss the chance of further delays, which could significantly impact Gamma’s revenues and profits.
In its latest six-month report, Gamma’s sales grew by a mere 1% (excluding one-off acquisitions learn more about takeovers and mergers). This underscores the importance of the copper network transition – it could be the difference between a stellar 2026 and a disappointing one.
Looking Beyond 2026: Long-Term Potential
From a long-term perspective, I believe the timing of the network switch – whether in 2027 or later – is less critical than the transformative impact it will have on Gamma. Discover the benefits of long-term investing. Whenever the transition occurs, I expect it to provide a substantial boost to Gamma Communications.
While the FTSE 250’s tendency to lose its top performers dampens my enthusiasm for the index as a whole, it remains a fertile ground for uncovering individual opportunities. Gamma Communications is one such opportunity on my radar as we approach 2026. I believe it’s well worth considering at current prices – and it’s far from the only hidden gem in the index.
Controversial Question: Is the FTSE 250’s Structure a Flaw or a Feature?
Here’s a thought-provoking question for you: Do you view the FTSE 250’s habit of losing its top performers as a structural flaw that limits its overall potential, or as a unique feature that creates opportunities for savvy investors to identify rising stars? Share your thoughts in the comments – I’d love to hear your perspective!
Further Reading
- Want to start investing in 2026? 3 things to get ready now!
- Can the stock market continue its strong performance into 2026?
- Here’s how someone could invest £20k in an ISA to target a 7% dividend yield in 2026
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