As last month’s Chapter 11 bankruptcy protection filing from iconic US photographic film company Kodak goes to show, being a pioneer in your field and a global household name is not a guarantee of future success.

Mid Cap ETFs: The FTSE 250 is home to many fast-growing companies – such as Cookson Group Plc (pictured), which is up over 400% in the past three years.

Given the fast pace of modern technological development, in particular with the emergence of the internet, companies constantly need to ensure their business models remain relevant.  So is there a lesson for investors to take from this? Will the mega‐cap companies of today still be the success stories of tomorrow?

A look at the constituents of the FTSE 100 index of the biggest UK companies 20 years ago compared with today is quite revealing. In fact, only 29 of the top 100 stocks of 1992 are still in the FTSE 100 today, with a further half‐dozen the product of mergers with other former FTSE 100 stocks. Some, like Cadbury, may be quite recently departed, but others, such as Arjo Wiggins Appleton, Hanson and United Biscuits – once bastions of British industry – have long since been swallowed by foreign conglomerates, and others may follow given the strong cash position of corporates and the rise of sovereign wealth funds.

Indeed, many of the FTSE 100 constituents today are international giants whose operations and revenues are predominantly outside of the UK. The index includes a growing band of emerging-market companies, typified by resources stocks such as Kazakhmys, Essar and Vedanta, whose choice to list in London is a sign of the City’s success as a truly global financial hub

But these companies are so big that they are tending to break straight into the FTSE 100 on their London Stock Exchange debuts, providing a timely reminder that those who buy index‐tracking funds linked to the FTSE 100 index are getting a snapshot of companies that have already achieved significant growth, and that they should cast their net wider in search of the stars of tomorrow.

Jason Hollands, Director, F&C Investments, says: “Index funds and ETFs can play a very effective part in a diversified portfolio but they are not a panacea. Even the broader FTSE All‐Share index – which includes around 620 companies – is still heavily dominated by the largest stocks, as the FTSE 100 constituents makes up 85% of the All Share, meaning much of the additional diversification from the extra 520 constituents is illusory.”

“While there are undoubtedly some great businesses in the FTSE 100, to capture the full range of bargains to be currently found in equity markets investors should look at funds which have the freedom to invest in mid‐caps and smaller companies. Some of these will become the giants of tomorrow.”

For investors looking to gain exposure to UK small- to mid-cap equities, there are a growing number of low-cost exchange-traded products to choose from tracking a range of indices.

The following funds track the FTSE 250 Index. The FTSE 250 is designed to measure the performance of the mid-cap segment of the UK market and offers exposure to the 250 UK stocks which rank below the FTSE 100 Index measured by full market capitalisation. The index represents approximately 13% of the UK market capitalisation.

HSBC FTSE 250 ETF (HMCX)
Physical, TER 0.35%

Lyxor ETF FTSE 250 (250F)
Synthetic, TER 0.30%

DB x-Trackers FTSE 250 ETF (XMCX)
Synthetic, TER 0.35%

FTSE 250 Source ETF (S250)
Synthetic, TER 0.35%

iShares FTSE 250 ETF (MIDD)
Physical, TER 0.40%

The following fund tracks the FTSE RAFI Europe Mid-Small Index. The index is designed to track the performance of the largest European Mid to Small-cap equities, selected based on the following four fundamental measures of firm size: book value, income, sales and dividends. The UK makes up about 25% of the fund.

PowerShares FTSE RAFI Developed Europe Mid-Small ETF (PSES)
Physical, TER 0.50%

The following fund tracks the MSCI UK Small Cap Index. This is an equity index of securities with a small market capitalisation generally incorporated in the United Kingdom and listed on the London Stock Exchange.  The index provides a representation of 10 sectors with approx 280 constituents.

Credit Suisse MSCI UK Small Cap ETF (CUKS)
Physical (optimised sampling), TER 0.58%

For investors looking for a pure small-cap play, they might like to consider the following Exchange Traded Certificate (ETC) from RBS. This ETC (also known as ETN) tracks the Hoare Govett Smaller Companies Index and provides exposure to the share price performance of up to 200 of the smallest 10% of companies (as measured by market capitalisation) based in the UK and listed on the London Stock Exchange, a market that has traditionally been difficult and inefficient to access.

RBS HGSC Tracker ETC (RS64)
Synthetic, annual management fee of 0.60%