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FTSE 100 re-shuffle: the winners and losers

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

EasyJet has nosedived out of the FTSE 100 this week, following the latest quarterly re-shuffle of the UK’s top companies.

Easy Jet

The budget airline has been cruising in the blue chip index for the past six years but after a bumpy start to 2019, with passenger numbers and ticket prices down, its shares have fallen to a five year low, reducing its market value.

A sustained period of higher oil prices and a weak pound - making holidays abroad more expensive - have hit the company hard. Brexit uncertainty, causing holidaymakers to hesitate before booking their fortnight in the sun, has also acted as a headwind.

Hikma Pharmaceuticals will also drop out of the Footsie into the mid-cap FTSE 250. After a challenging 2017 the drugs maker had swung back into profit in 2018 leading to its entry in the FTSE 100 in December, however the momentum wasn’t enough to keep it there.

According to the rules of the FTSE Russell reviews committee, FTSE 100 companies that have fallen to 111th position or worse are demoted. Conversely, FTSE 250 companies that would make 90th position or above in the FTSE 100 based on their market size get promoted.

For now, Marks and Spencer has managed to avoid relegation. The struggling high street retailer has been a firm fixture of the FTSE 100 since the index was created in 1984. While its market value had dipped below the level needed to stay in, the retailer received a boost from a £601million rights issue it launched last month. Investors in the company will be hoping that a tie-up to sell M&S food via Ocado next year will provide the much needed support its shares need.

Also escaping relegation this time is the takeaway ordering platform Just Eat, supermarket chain Sainsbury’s and travel company Tui. All three companies are heavily dependent on a very fragile consumer sector, currently under pressure as households battle with squeezed incomes and Brexit uncertainty.

New entrants

Moving up the charts to take the two available spaces are high street retailer JD Sports and engineering software firm AVEVA.

JD Sports, unlike its struggling retail peers, has tapped into the growth of “athleisure” clothing and has managed to successfully increase both its sales and share price, meaning the company now has a market value of just over £6 billion.

Investors in Cambridge-based engineering and industrial software firm AVEVA have done well since the company completed its merger with Schneider Electric’s industrial software business a year ago. The deal saw Schneider contribute software assets to AVEVA and a £550million payment to shareholders in exchange for a 60% share of the combined business. The market value of the company is also over £6bn.

Over the past 35 years the FTSE 100, like the UK economy, has constantly evolved. Back in 1984 the index featured many household names aimed at the domestic market. Then came the nationalisation of many state industries which changed the composition of the index over the 1980s.

Now of course the index is far more international than it once was, with more than 75% of FTSE 100 companies generating their earnings from overseas. With such a large presence of multinationals it’s no longer an indicator of the true state of the domestic UK economy.

Financials and oil and gas companies feature heavily in the index with HSBC, BP, Shell, AstraZeneca and Diageo currently holding the top slots.

Many investors looking to access the performance of an index turn to tracker funds which aim to follow the ups and downs of a particular market.

To get a broader, more diversified spread of companies, many UK tracker funds follow the FTSE All-Share Index instead, as it is made up of over 600 London-listed companies. The Fidelity Index UK Fund does exactly that, with an extremely low ongoing charge of just 0.06% per year.

More on Fidelity Index UK Fund

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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