Quarterly review signals upcoming changes to FTSE 100 ETFs

Dec 3rd, 2015 | By | Category: Equities

FTSE Russell, a leading index provider to the exchange-traded funds industry, has announced changes to the FTSE 100 Index, the principal reference for the largest stocks listed in the United Kingdom based on market capitalisation. Through a rules-based process, this quarter’s review has determined that three firms currently constituting the index will be replaced. The move is set to prompt significant buying and selling activity amongst a wide range of ETFs that currently track the prestigious index.

Quarterly review signals upcoming changes to FTSE 100 ETFs

The FTSE 100 Index is the UK’s premier reference for large-cap equity performance. The index tracks the top 100 firms by market capitalisation listed on the London Stock Exchange.

Those which have been dropped in this quarter include Morrisons, the supermarket that narrowly avoided demotion in the June and September reviews and has been facing increased competition from Aldi and Lidl, two German low-cost competitors; G4S, a large security firm that has been embroiled in scandal during recent years after it emerged that it had been charging ‘prisoner tagging’ fees to the Ministry of Justice for offenders who were already released or even deceased; and Meggitt, an aerospace and defence company whose shares plunged 20% after the firm announced a profit warning in October due to weak energy and defence markets.

Those firms which have upgraded to the index include Worldpay, an international global payments processor whose market cap has soared by over 25% to £5.9bn after its October listing on the London Stock Exchange; Provident Financial, a sub-prime lender whose value has also climbed over 25% since the last index review owing to a strong jobs market supporting repayments from customers; and DCC, a business support services group known for its unmanned petrol stations.

All changes will be enacted as of 21 December 2015.

The methodology behind the changes is designed to ensure that firms are not added or removed based on recent price fluctuations but rather on longer-term structural trends. As of the index review date, any previously excluded firm will only be granted admission if their market cap is ranked 90th or above in terms of market cap and any company currently constituting the index may only be demoted if their market cap has sunk to a rank of 111th or below.

The largest ETF (in terms of assets under management) tracking the FTSE 100 Index is the iShares Core FTSE 100 UCITS ETF (ISF), with over £3.7bn in AUM. It is also one of the cheapest means of accessing the index after iShares slashed total fees on the fund from 0.40% to 0.07% earlier this year. Other significant ETFs which reference the FTSE 100 Index include the Vanguard FTSE 100 UCITS ETF (VUKE), which holds over £1.8bn in AUM and carries total fees of 0.09%; and the UBS FTSE 100 UCITS ETF (UBO3), holding over £110m in AUM and carrying a total expense ratio of 0.20%.

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