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One in one out in latest FTSE 100 rebalancing

Written by: Adam Lewis
Despite a wave of predicted changes only one company was relegated from the FTSE 100 in the indexes latest quarterly review.

Ahead of the rebalancing of the country’s largest 100 companies, it was predicted that among others Merlin Entertainments could drop out of the index following a troubled year after a serious accident at Alton Towers last June. However despite the impact on its profitability Merlin held its position, while the only company promoted onto the index was the pharma stock Hikma Pharmaceutical.

Meanwhile, having been demoted from the FTSE 100 to the FTSE 250 in the last review in March, Aberdeen Asset Management was added onto the reserve list for possible inclusion back into the blue chip index.

The reserve list is used in the event of a corporate action occurring between reviews e.g. merger, acquisition, delisting or suspension. In such cases, the reserve list constituent with the largest market capitalisation (on the date of the corporate action) will replace the outgoing constituent.

According to AJ Bell, since the launch of the FTSE 100 in 1984 there have been over 400 changes to the benchmark’s membership. Looking back over the past 10 years, it says that Oil, Banking and Mining stocks have all decreased in influence, while Tobacco, Beverages, Travel & Leisure and Support Services have all become more prominent.

“The most dramatic changes to the index tend to occur when a sector is hot or conversely is falling from grace,” says Russ Mould, investment director at AJ Bell. “These trends can lead to a rash of promotions or demotions, trends which can make or cost investors money if they are (or are not) spotted soon enough.”

Mould says the biggest slump over the past 10 years has been in the Banking sector following the financial crisis of 2008 and a host of mis-selling scandals since.

“The resources sectors have also seen huge changes since 2006,” he adds. “The collapse of the price of oil and BP’s deepwater horizon disaster have seen the presence of oil stocks in the FTSE 100 fall from 19.3% in 2006 to 13% today.

“Mining stocks have also been hit hard by slowing demand from commodities from emerging markets and the resulting collapse in prices. Mining stocks saw the third biggest decline in their position in the FTSE 100, falling from 7.1% in 2006 to just 4.7% today.”

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