over 3 years ago • 2 mins
This week, the UK’s major stock market index – the FTSE 100 – will be reshuffled, some of its stocks flushed, and investors dealt a new hand 🃏
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. It’s also regularly updated to factor in stocks whose valuations have risen, as well as boot out any whose values have shrunk. And since the ongoing pandemic has drastically changed plenty of companies’ fortunes, there are a few big changes this time around 📊
Take airline EasyJet and cruise operator Carnival, whose shares have – perhaps understandably – more than halved since coronavirus all but halted global travel. They’ll probably drop out of the group of 100 “blue chip” companies as a result, and likely be replaced by firms like tech giant Avast and medical equipment-maker ConvaTec – both of whose industries have benefited from the outbreak.
The proportion of investors’ cash in “passive” funds – which track the performance of stock market indexes, often via exchange-traded funds (ETFs) – is getting bigger. In fact, half of all stock market investment in the US is now passive. Keen-eyed “active” investors, then, might’ve bought up certain high-performing UK stocks ahead of this week’s rebalancing 🔮 That way, they’d hope to profit when the investment funds mirroring the FTSE 100 buy up stocks to reflect 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 that stocks which 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.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.