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The FTSE 250 index is often overlooked by investors.
Those seeking an attractive income or relatively low-risk shares usually buy FTSE 100-listed firms due to their historically high yields and size advantage over smaller companies.
Other investors seeking capital growth tend to either purchase small-cap UK stocks with upbeat growth prospects or invest internationally in relatively buoyant economies such as the US.
However, in Questor’s view, UK mid-cap shares currently offer a hugely attractive long-term investment outlook.
The FTSE 250 index contains a wide range of high-quality companies that have solid balance sheets and sustainable competitive advantages.
In many cases, they operate across a variety of geographies, have the potential to generate fast-growing profits, and trade on fair valuations.
Over time, simply buying and holding such companies can generate high returns for investors on both an absolute and relative basis.
For example, Oxford Instruments has generated a 20pc capital gain since first being tipped by this column in December 2022.
The FTSE 250 member, which designs and manufactures equipment used to analyse matter at an atomic and molecular level, has outperformed the mid-cap index by 15 percentage points and beaten the FTSE 100 index by 12 percentage points since our original recommendation.
Its latest annual results were relatively encouraging.
Revenue rose by 9.8pc, while operating profits were up 3.7pc year-on-year.
While profits were in line with market expectations, the firm saw a 100 basis point decline in its operating profit margin compared with the previous year.
It fell to 17.1pc as a result of the business ceasing certain commercial activities in China and making ongoing investment in its operations.
Still, the company’s return on equity amounted to 18pc.
This is relatively high but is made even more impressive by the fact that the firm uses a very modest amount of debt in its capital structure.
Indeed, its net cash position currently stands at around £50m.
This provides it with scope to bolster its financial performance via acquisitions, with the company’s latest purchase of Femto Tools announced alongside the release of its annual results.
Separately, a reorganisation of its operations is set to act as a further catalyst on Oxford Instruments’ financial performance.
It is aiming to generate annualised revenue growth of 5pc to 8pc, excluding the impact of acquisitions, over the medium term.
It is also seeking to grow its operating profit margin by at least 290 basis points so that it stands at 20pc plus over the coming years.