All change for your FTSE trackers

FTSE 100 tracker funds will no longer have exposure to Morrisons and FTSE 250 index trackers will hold more investment trusts

December 9, 2015

by Kate Beioley

If you own a FTSE 100 tracker fund you will no longer own Morrisons (MRW), G4S (GFS) or Meggitt (MGGT) after 21 December 2015, following their demotion from the top UK index at this month's quarterly review. All three have lost their places in the benchmark index following a period of underperformance and been demoted to the FTSE 250.

Morrisons, which currently has a market cap of around £3.51bn, has seen its share price fall by around 17 per cent in the year to 2 December, when it was removed from the index. It has been shifted into the FTSE 250, triggering sales by trackers that follow the FTSE 100 and purchases by those that buy the FTSE 250.

The market was not surprised by the move, as Morrisons had hovered close to demotion during the June and September reviews. The supermarket has been hit by price competition among discount supermarkets and was forced to sell off a string of lossmaking stores earlier this year.

Security company G4S was demoted after its shares fell by 13 per cent in one quarter alone, while aerospace and defence company Meggitt was expelled after its shares dropped 20 per cent following an October profit warning.

The review also affects several popular investment trusts, which have been added to indices or made the FTSE reserve list, meaning they may qualify for inclusion in an index if other stocks drop off the list before the next index review. Investment trust the Renewables Infrastructure Group (TRIG) will join the FTSE 250 and FTSE 250 High Yield and FTSE 350 High Yield indices, which could see its share price bolstered by purchases by tracker funds. The trust invests in a portfolio of assets that generate electricity from renewable sources, focusing on onshore wind farms and solar parks. It generates a good income stream, with a yield of 6.2 per cent.

Real estate investment trust Assura (AGR) will also be joining the FTSE 250, and FTSE 250 High Yield and FTSE 350 High Yield indices. The trust invests in primary care facilities such as GP surgeries, and generates a healthy income stream, yielding 3.7 per cent.

HarbourVest Global Private Equity (HVPE) also entered the FTSE Small Cap and All-Share indices after listing on the main market earlier in September. It is on a discount of 19.9 per cent, despite delivering strong performance in share price terms over one, three and five years.

Investment trusts on the reserve list include Jupiter European Opportunities Trust* (JEO), global equity trusts Personal Assets Trust * (PNL) and Law Debenture (LWBD) and Herald Investment Trust (HRI), which invests in smaller quoted companies.

As well as funds, additions to the FTSE 100 also include Ireland-based DCC (DCC), an international sales, marketing and business support services group operating in energy, technology, healthcare and environmental. According to Gerry White, chief investment commentator at Charles Stanley Direct, the shares trade on a current-year earnings multiple of 23.3 and yield 1.6 per cent. FTSE 100 tracker investors will also hold payments processing technology company Worldpay (WPG), on an earnings multiple of 41.3, and Provident Financial (PFG), a UK doorstep lender.

Funds that will be affected by these index changes include Vanguard FTSE 100 UCITS ETF (VUKE) and iShares FTSE 250 ETF (MIDD). Currently the largest position in VUKE is HSBC Holdings (HSBA), at 6.03 per cent of the portfolio.