FTSE 100 reshuffle: who’s in and who’s out

Sam Slator 17/06/21 in Strategy

The FTSE 100 will have a reshuffle over the weekend, as its quarterly review sees Renishaw relegated from the UK’s list of 100 largest companies and ITV step up.

Renishaw’s founders are trying to sell their combined 53% holding, but the precision engineering firm hasn’t been able to find a new owner and its share price has fallen. It returns to the FTSE 250 on Monday after just three months away.

ITV on the other hand joins newly promoted Royal Mail in the top flight (the postal company joined the FTSE 100 last month when RSA Insurance Group was deleted*). ITV was hit hard when the pandemic caused production problems and advertising budgets were slashed. Marketing spend is now ramping up once again and filming schedules are back on track.

Changes to the FTSE 250

Moonpig.com – a recent investment for Murray Income Trust – is among four companies rising into the FTSE 250. The company has done well during the pandemic as demand for cards and personalised gifts ordered online has grown substantially and, by using data to predict consumer preferences, it has managed to position itself as an e-commerce player rather than just an online card retailer.

Trust Pilot, Auction Technology Group and Spire Health Group also enter the mid-cap index, while Foresight Solar Fund, JLEN Environmental Assets Group, Provident Financial and Sabre Insurance Group fall out.

Forced buyers and sellers

When companies move between indices in this way, they can experience technical buying or selling as a result of tracker funds adjusting their stock weightings. The impact of this is more acute when a stock comes into the FTSE All Share for the first time, as often this will result in net buying from tracker funds.

Chris St John, manager of AXA Framlington UK Mid Cap fund, commented: “Our fund has been structured so that it can hold up to 15% in FTSE 100 companies, in order to minimise the risk of becoming a forced seller at the point that a holding is promoted, without compromising the mandate of being a core UK mid-cap fund.

“In the June index changes, recent IPOs held in the fund (Moonpig and Auction Technology Group) will enter the FTSE All Share for the first time. The only FTSE 250 company scheduled to move to the FTSE 100, ITV group, is not a holding.

“From a fund management perspective, although the FTSE 100 holdings can be held indefinitely, they are typically used as a source of capital when a more exciting opportunity presents itself. Promotion to the FTSE 100 is a sign of success to some degree and we look forward to many more of our holdings following this path over next years.”

Investing in the index or an active fund?

Although the FTSE 100 is a prestigious list and passive funds tracking the index tend to be cheaper than active funds, the average actively managed UK equity fund has significantly outperformed (after charges have been deducted) over multiple time periods, as the table below shows**.

Percentage returns over 1 year**Percentage returns over 3 years**Percentage returns over 5 years**Percentage returns over 10 years**
FTSE 10022.28%5.34%45.88%82.46%
IA UK All Companies sector average31.86%11.21%53.05%106.98%

The outlook for UK equities is also improving. Not only is the UK ahead in terms of the vaccine roll-out, but Brexit is now concluded and valuations for UK firms are still cheap vs peers listed in other countries.

Global investors have also started returning to the asset class, having been underweight UK equities for the past seven years, and a number of multi-asset funds have a bias towards to home market. TB Wise Multi-Asset Growth, BMO MM Navigator Distribution, Close Managed Income and VT Momentum Diversified Income, all have 20%^ or more invested in UK equities, for example.

For those wanting to invest in UK equities there are a number of alternatives for all types of investors.

Different types of UK equity funds to consider

For the more discerning investor, ASI UK Ethical Equity is an option. The company invites investor opinion annually into what categories they want the fund to include or exclude in the portfolio.

Those looking for an income, could consider LF Montanaro UK Income fund, where each holding will offer an attractive dividend yield or the potential for dividend growth, while growth investors may prefer Marlborough Multi-Cap Growth fund, which principally invests in sector leaders that can grow regardless of the prevailing economic landscape.

The more cautious investor may like to consider Threadneedle UK Extended Alpha, which can make money from falling share prices as well as rising ones, while investors willing to take on more risk may like a fund such as Liontrust UK Smaller Companies.

Research all Elite Rated UK equity funds

 

*In the event of corporate actions such as mergers and acquisitions, the highest-ranking company not currently included within the applicable index serves as the replacement.
**Source: FE fundinfo, total returns in sterling to 15 June 2021
^Source: fund fact sheets, 31 May 2021 and 30 April 2021

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.