FTSE 100 ETFs set to ditch housebuilder Berkeley Group

Sep 1st, 2016 | 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 will see only one member of the index being replaced, but will still trigger re-balancing activity in exchange-traded funds that track the index, such as the giant iShares Core FTSE 100 UCITS ETF (ISF). It will also make such ETFs even less UK-centric.

FTSE 100 ETFs set to ditch housebuilder Berkeley Group

FTSE 100 ETFs are set to ditch UK housebuilder Berkeley Group.

Effective Friday 16 September 2016, housebuilder Berkeley Group will be relegated from the index in favour of precious metals mining company Polymetal International.

Helal Miah, Investment Research Analyst at the Share Centre, said: “Companies related to the housebuilding sector have undoubtedly felt the wrath of Brexit and unfortunately, residential housebuilding company Berkeley Group has taken the biggest blow as it is demoted from the FTSE 100 to the FTSE 250. The company stated that pre-tax profits and reservations were down even before the vote although forward sales were on the rise. Nevertheless, the shares dropped 30% after the referendum on concerns that the housebuilding sector would suffer a fall in demand, declining selling prices and greater difficulty in finding enough skilled labour. Investors should also appreciate that the London market, where Berkeley has most of its developments, is seen as especially vulnerable given the large number of foreign buyers and the strong growth in recent years.”

Commenting on the inclusion of Polymetal, Miah said: “We rightly predicted that taking its place would be precious metals producer Polymetal International. It has been confirmed that the company will bounce back to the FTSE 100 after a number of years outside of the index. In contrast, this overseas company is likely to have benefited from the fall in sterling post Brexit and in addition, the recovery in gold and silver prices will have helped raised the value of the company.”

Miah notes that firms with globally-diversified operations tended to exhibit a greater degree of resilience following Brexit: “It is also interesting to note that amongst the candidates who could have been relegated were companies that had a large exposure to the UK, while those who were contenders for promotion are heavily reliant on global sales. The latest reshuffle goes some way towards making the FTSE 100 further biased towards international markets and less of a benchmark of UK Plc. If the status quo remains, then the next quarterly review could see the FTSE 100 further skewed.”

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.

FTSE 100 Index characteristics.

FTSE 100 Index characteristics.

The largest ETF tracking the index, in terms of assets under management, is the aforementioned iShares product with over £4.1bn in AUM as of 1 September 2016. It is also one of the cheapest with a total expense ratio of just 0.07%.

Other significant ETFs linked to the FTSE 100 include the Vanguard FTSE 100 UCITS ETF (VUKE), which holds over £2.2bn in AUM and carries a fee of 0.09%, and the UBS FTSE 100 UCITS ETF (UBO3), with over £120m in AUM and a total expense ratio 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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