It’s been an indifferent performance for the FTSE100 this year not helped by weak energy and an underperforming banking sector, which has seen the UK’s benchmark index underperform the wider market. While the FTSE100 has underperformed the FTSE250 has posted decent gains year to date of around 8%. This year we’ve also seen a number of high profile demotions from the wider index with Tullow Oil, Aggreko dropping out and companies like Hikma Pharmaceuticals and Inmarsat replacing them. It has been a long held belief that demotion from the FTSE100 is a major negative for the share price of the demoted company, while on the flip side; inclusion in the FTSE100 is a major positive on the basis that tracker funds will be obliged to rotate funds into and out of a stock so that these funds can more accurately track the performance of the underlying index. The performance of Tullow Oil and Aggreko certainly hasn’t improved since they dropped out of the index earlier this year, but the companies that replaced them haven’t exactly been ripping up any trees either in terms of their share price performance since their inclusion. So while one could say that dropping out of the index is a negative, inclusion isn’t always the positive that it should be. For instance Hikma’s inclusion in March has seen the share price pretty much trade sideways for the last nine months, and though Inmarsat’s shares have done well after they were included in the June reshuffle, they did drop 10% initially before recovering. In this quarter’s reshuffle Morrison’s share price has finally succumbed to falling though the trap door, not altogether surprising given that since March the shares have declined 25%, and are now trading at 12 year lows. In its place it could well be replaced by recent IPO WorldPay the electronic payment processor whose shares have done very well since floating in October, up over 20%. That doesn’t automatically suppose they will continue to push higher as shareholders of another IPO, Royal Mail will testify when it was included in the index in December 2013 when the shares were up at 580p. The shares are now 20% lower so being included in the FTSE100 isn’t always the investment panacea that investors would like it to be. Also losing their places this quarter Meggitt and G4S have dropped out to be replaced by DCC and Provident. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Shuffling the pack on the FTSE
19:00, 02 December 2015 · By Michael Hewson