EDITOR’S VIEW

Re­view likely to leave flag­ship in­dex un­changed for first time since 2006

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What does an un­changed FTSE 100 tell us about the mar­ket

As we went to press it was look­ing in­creas­ingly likely that the lat­est FTSE reshuf­fle would see no changes to the FTSE 100 for the first time in more than a decade.

These reshuf­fles can be sig­nif­i­cant and not just for the pres­tige associated with mem­ber­ship of the UK’s flag­ship in­dex. It can also af­fect the flow of money into a stock, as, when it en­ters the FTSE 100, funds which track the in­dex are com­pelled to buy.

We dis­cussed in our 23 Au­gust is­sue, which fo­cused on the FTSE 100, how these quar­terly re­views of in­dex mem­ber­ship work. As a brief re­minder, com­pa­nies qual­ify if they rank among the top 90 UK listed firms by mar­ket value and are elim­i­nated if they fall to po­si­tion 111 or be­low on the night be­fore the re­view takes place – in this case close on 4 Septem­ber.

At the time of writ­ing, the low­est ranked FTSE 100 com­pany was prop­erty list­ings site Right­move (RMV) but it was still ma­te­ri­ally above the cut-off point for au­to­matic de­mo­tion.

STA­BIL­ITY OR STERILITY

Whether the fact the FTSE 100 will re­main the same for two con­sec­u­tive quar­ters for the first time since 2006 is a sign of wel­come sta­bil­ity or sterility is open to ques­tion.

Since the last reshuf­fle was de­ter­mined at the end of May, the FTSE 100 has drifted, trad­ing close to the 7,800 mark in early Au­gust but now just barely above 7,500.

It also im­plies mid caps are lack­ing the mo­men­tum to break into the top ech­e­lons of the mar­ket. This would fit neatly into a nar­ra­tive of the FTSE 250, the pool from which fu­ture FTSE 100 firms are drawn, be­ing neg­a­tively im­pacted by Brexit un­cer­tainty due to a do­mes­tic bias.

How­ever, as we dis­cussed in our fol­low-up to the FTSE 100 fea­ture last week, which looked at the FTSE 250 in de­tail, many of its con­stituents have in­ter­na­tional hori­zons. The two com­pa­nies which were knock­ing hard­est on the door of the blue chip in­dex, oil ser­vices firm

Wood Group (WG.) and in­dus­trial pumps spe­cial­ist Weir (WEIR) are both truly global busi­nesses.

In the long-term there are still rea­sons to be­lieve the FTSE 250 can con­tinue its his­tor­i­cally strong per­for­mance. Mid caps oc­cupy a very healthy po­si­tion. They are nei­ther too small, and thereby lack­ing the scale re­quired for a suc­cess­ful busi­ness, or too big and ma­ture to gen­er­ate mean­ing­ful growth.

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