FTSE 100 ETFs set for reshuffle after quarterly index review

Mar 2nd, 2017 | By | Category: Equities

Index provider FTSE Russell has announced constituent changes to the FTSE 100 Index, the flagship reference for large-cap blue-chip stocks listed on the London Stock Exchange. The latest quarterly review, which saw two names being selected for replacement, will trigger re-balancing activity in exchange-traded funds that track the index, such as the giant £4.7bn iShares Core FTSE 100 UCITS ETF (LON: ISF).

FTSE 100 ETFs set for reshuffle after quarterly index review

Effective Monday 20 March 2017, Dixons Carphone and Capita will be removed from the FTSE 100 Index in favour of Rentokil and Scottish Mortgage.

Effective Monday 20 March 2017, consumer electronics retail giant Dixons Carphone and business process outsourcing company Capita will be removed in favour of pest control group Rentokil and investment trust Scottish Mortgage.

Dixon Carphone’s share price has fallen approximately 12% since the FTSE 100’s last quarterly review on 1 December 2016. The firm has suffered due to higher import costs as a result of the weaker pound and is facing increasing competition in the sector from the likes of Amazon. Russ Mould, investment director at AJ Bell, said: “Dixons Carphone’s demotion from the blue chip index follows a rough period due to concerns over how Brexit will affect UK consumer confidence and the ongoing battle within the retail industry between bricks and clicks.”

Capita’s share price has been on a volatile ride since the last review, losing 16.5% between 1 – 13 December alone. Although it has recovered slightly since that point, the price is still down 4.8% since the last review. According to Helal Miah, Investment Research Analyst at the Share Centre: “The group has seen its share price remain under pressure since the Brexit vote, as the market highlighted concerns over future contracts and their length, which has dropped from an average of eight years to seven. These concerns were rubber stamped with a significant profit warning in September of 2016 and a further lowering of its profit guidance in December pointing to a slow-down in trading, costs and continued delays in client decision making.”

Scottish Mortgage has seen its share price grow by 15.1% since 1 December 2016. Miah notes: “With 95% of its holdings weighing towards international investments, it’s possible that its recent success is as a result of it benefitting from the weaker pound. “

Rentokil is up 16.8% over the past three months. The firm has produced six consecutive dividend increases recently, leading income-hungry investors to raise their support for the stock.

The methodology behind the review is designed to ensure that firms are not added to or removed from the index based on recent and potentially short-term price fluctuations, but rather on longer-term structural valuation shifts. On review dates, any previously excluded firm will only be granted admission if their market cap is ranked 90th or above and any company currently included in the index may only be demoted if their market cap has sunk to a rank of 111th or below. This mechanism ensures a degree of stability.

The largest ETF tracking the index, in terms of assets under management, is the aforementioned iShares product with over £4.7bn in AUM as of 1 March 2017. It is also one of the cheapest with a total expense ratio (TER) of just 0.07%.

Other significant ETFs linked to the FTSE 100 include the Vanguard FTSE 100 UCITS ETF (VUKE), which holds over £2.4bn in AUM and has a TER of 0.09%; and the UBS FTSE 100 UCITS ETF (UBO3), with £120m in AUM and a TER of 0.20%. Notable leveraged plays include the ETFS 3x Daily Long FTSE 100 (UK3L) from ETF Securities and the Boost FTSE 100 3x Leverage Daily ETP (3UKL) from Boost ETP, part of WisdomTree.

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