almost 4 years ago • 2 mins
Every quarter the FTSE 100’s shufflin’ – and that’s why the major UK stock market index picked up a few new stocks and lost a few old ones on Wednesday 🕺
The FTSE 100 comprises the UK’s biggest public companies by value, and its performance helps investors gauge the health of both corporate Britain and the wider economy. But since company fortunes can change with the wind, the FTSE is regularly updated to factor in stocks whose valuations have risen – and boot out any that have shrunk.
Of those that got the chop: DIY chain Kingfisher and travel company TUI, which – despite benefiting from rival Thomas Cook’s bankruptcy last year – struggled with the grounding of Boeing’s 737 MAX 8 airplanes and, more recently, the effects of coronavirus ✈️ They were joined by NMC Health, whose shares were suspended following a major accounting scandal. Mining company Fresnillo and alternative asset manager Intermediate Capital Group, meanwhile, were more than happy to take those companies’ “blue chip” status off their hands.
The share of investors’ cash in “passive” funds – which track the performance of stock market indexes, often via exchange-traded funds (ETFs) – is getting bigger. In the US, in fact, half of all stock market investment is now passive 💰 Ahead of Wednesday’s rebalancing, then, keen-eyed “active” investors might’ve bought up certain high-performing UK stocks in hopes they’d profit when passive funds mirrored the updated index.
Even if you prefer individual stocks to ETFs, it’s worth keeping an eye on which ones are being added to the various indexes 👀 Studies suggest stocks that are heavily owned by ETFs climb more than average in a rising market – perhaps thanks to the higher demand. And since ETFs are slower to sell, stocks may also drop by less than average in a falling market too.
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