Why is the FTSE 100 beating the FTSE 250 so far this year (and over the past five years)?

Most regions have fully recovered all the losses since the Liberation Day announcement on 2 April triggered a global market sell-off. However, if you look at performance since the start of the year it is clear markets aren’t moving in unison, with the US is a notable laggard.

Countries like Germany are racing ahead, with the Dax index up 19% year-to-date. Hong Kong’s Hang Seng is trading 15% higher, France’s CAC 40 index is 6.6% ahead, and even the UK’s FTSE 100 is standing tall with a 5.3% gain.

The S&P 500, which is one of the main stock indices in the US, is down 0.6% so far in 2025 and the tech-heavy Nasdaq index in the States is trading 3.1% lower.

Why is the US behind?

One reason why the US is lagging other parts of the world is down to shifting investor preferences.

There are concerns among parts of the investment community that Trump’s policies could hurt the US economy and we’ve seen a rotation away from US assets towards cheaper parts of the market, which includes Germany and the UK.

Why is the FTSE 250 also lagging?

What’s perplexing is why the FTSE 250 hasn’t really gone anywhere this year. A mere 0.4% gain since 1 January puts it near the bottom of the pack of major market indices.

It’s odd given that given that the UK mid-cap index is full of cheap stocks and should have benefited from any market rotation away from the US. Furthermore, its higher dependence on the domestic economy should, in theory, mean the FTSE 250’s members are less impacted by Trump’s tariffs.

The FTSE 100 vs the FTSE 250

The FTSE 100 tracks the 100 companies with the highest market value on the UK stock market. The FTSE 250 tracks the next 250 companies on the list and does not include any that belong to the FTSE 100.

Since the start of 2025, the FTSE 250 has returned 0.5%, while the FTSE 100 has returned 10 times as much. Those performance figures exclude dividends.

The relative underperformance of the FTSE 250 isn’t particularly new. It has a total return (share price gains/losses and dividends) of 50% in the last five years, while the FTSE 100 returned 75%.

Certain investors might be surprised by these statistics, particularly as the FTSE 250 has a history of beating the FTSE 100 when you look further back in time. For example, over 20 years, the FTSE 250 has a 424% total return versus 271% from the FTSE 100.

One reason for the stronger growth in the past five years for the FTSE 100 could simply be a matter of name recognition. It can sometimes be viewed as the ‘go-to’ index for those who want exposure to the UK, the same way that the S&P 500 is for the US. If investors are drawing down their US holdings and looking for exposure in another developed market, they may naturally be drawn to the FTSE 100 first.

Banks are the key to the FTSE 100’s success over the past five years. Banking represents 13.5% of the index and you can find relevant companies that have exposure to either the UK or Asia.

The banking sector is popular with income sectors thanks to generous dividends and shares in the likes of NatWest, Barclays and Standard Chartered have done well in recent years as they’ve benefited from the higher interest rate environment.

International impacts

The FTSE 100 is interesting because much of its business occurs outside the UK. According to data from LSEG, over four fifths of the sales among FTSE 100 companies came from outside the UK. Many of the largest companies in the index, such as Shell, HSBC and BP are international businesses.

While this can allow for growth even if the UK isn’t at its strongest, this can also mean that the FTSE 100 is sensitive to changing politics abroad, such as the tariff policies in the US.

The FTSE 250 has less international exposure with 55% of sales derived outside of the UK, albeit that is still a decent chunk. Of the remaining 45% of members who rely on the UK to make money, there is a bias towards consumer-facing companies such as retailers and leisure groups, and these parts of the market have been weak so far in 2025.

If we look further back, over five years the FTSE 250’s worst performers include retailers, oil companies, fund manager groups and renewable energy investment trusts.

What other types of companies do the indices hold?

The FTSE 250 is heavily skewed towards financial companies which includes asset managers and insurers. In fact, over 40% of the FTSE 250 is in financials, while the FTSE 100 is more spread out, with larger weightings in areas including healthcare, consumer staples and energy.

The FTSE 100 has weights of between 10% and 20% in sectors including energy, industrials, consumer staples, healthcare, and financials. Healthcare, consumer staples and even tobacco – another big sector in the UK index – are defensive sectors with goods and services in demand regardless of what’s happening in the economy. Defensive stocks have been popular with investors since Trump returned to the White House as they look for less volatile investments.

The dividend factor

The FTSE 100 is a rich source of dividends for investors, and that’s something which has appealed during volatile market conditions over the past five years.

One of the attractions of the UK stock market is that many companies pay out dividends. Typically, companies that are more established (such as those in the FTSE 100) are more likely to pay out a generous dividend.

In contrast, companies that are aiming to grow at a faster rate (such as those in the FTSE 250) may choose to reinvest that money instead, using it for internal growth or to acquire other companies.

Given this situation, it might surprise to see the FTSE 250 offers a higher prospective dividend yield for 2025 at 4.1%, while the FTSE 100 yields 3.3%.

Big companies are increasingly returning surplus cash through a mixture of dividends and share buybacks, which means the dividend yield isn’t the only way to measure a company’s generosity.

Furthermore, dividends aren’t a sole indicator of whether an index or company is a good investment, but they can be an important consideration depending on when you would like to reap the rewards of your investments.