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.

At the close of trading today we will know who will be ushered into the FTSE 100 index of leading shares - and who is set for relegation. 

Based on tonight’s predicted closing prices, Homeserve (HSV) is likely to be booted out, while Pershing Square Holdings, a hedge fund manager, and Weir Group (WEIR), a mining technology company, look set to make their FTSE 100 debuts.

The latest quarterly reshuffle will be based on tonight’s closing prices.

Just two weeks ago home repairs company Homeserve, which offers subscription-based home maintenance service, saw its shares jump 2.4% to £12.67 as it upgraded its annual earnings guidance and raised its interim dividend by 7% year-on-year.

Following a better-than-expected showing since the first half, HomeServe said it expected to deliver pre-tax profits ahead of current consensus earnings estimates of £186.2 million. That compares favourably to the £181 million reported for 2020.

Homeserve’s share price is 12% lower than it was 12 months ago, although it has picked back up considerably, having dipped as low as 756.50p in March. Homeserve shares are currently trading around £10.57, giving it a market capitalisation of £3.54 billion.

The components of the FTSE 100 index are reviewed each quarter and, 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 cap get promoted.

Likely to see promotion to the FTSE 100 after tonight’s close is Pershing, which is today valued at £6.3 billion having turned in a stellar performance throughout 2020. Its share price is currently just shy of 75% higher than it was a year ago, currently trading around the £25 mark.

Weir Group is another contender. With a market cap of £4.35 billion it’s safely in promotion territory and like Pershing has had a strong year, with its shares up 22.5% on the year to date. Just last night it announced it had secured a £95 million contract in Australia. This same project - the Iron Bridge magnetite project in Western Australia - won it a record £100 million deal in 2019.

Weir Group’s Australian deal would be reflective of the international nature of the FTSE 100 index. While back in 1984 the index featured largely British household names, it is far more international today. More than 75% of FTSE 100 companies generate their earnings from overseas.

That also means that, because of this predominance of multinationals, it is no longer such a reliable indicator of the true state of the domestic UK economy. If it were, then when the pound strengthens against other currencies such as the dollar, you would not see the FTSE index fall as you do today, when the value of profits made overseas from multinational companies are reduced when converted into pounds sterling.

If you want a low-cost way to follow the ups and downs of the UK economy then rather than focusing on the top 100 companies, a UK tracker fund is a better bet. These tend to follow the FTSE All-Share Index which is made up of over 600 London-listed companies, giving a broader, more diversified spread of companies. The Fidelity Index UK Fund is one example and has a low ongoing charge of just 0.06% a year.

Five year performance

As at 2 Dec

2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
WEIR GROUP 70.5 5.2 -23.1 -2.5 22.5
HOMESERVE 48.4 31.0 24.8 29.2 -10.6

Past performance is not a reliable indicator of future returns

Source: Refinitiv Datastream, 01/12/2020, with dividends reinvested

Important information: 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. Overseas investments will be affected by movements in currency exchange rates.  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.

Topics Covered:

Active investing; Shares; UK

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