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.
While lockdown has led to a flood of new viewers to streaming services such as Netflix, Amazon Prime and Disney Plus, the same cannot be said for ITV which has seen a record fall in demand for advertising slots, coupled with social-distancing restrictions limiting the amount of new content the company can produce.
The broadcaster’s attempt to tap into the streaming market by joining forces with the BBC to create Britbox has not been enough to prevent the share price falling over 60% since December. As a result, the company will fall out of the FTSE 100 and join the FTSE 250 on 21 September in the latest quarterly reshuffle of the blue-chip index, based on Tuesday’s closing share price.
It may come as a surprise in the current environment that a retailer should take its place, but discount retailer B&M will be promoted into the FTSE 100 for the first time. While the lockdown period has made matters worse for many retailers on the high street, especially those without an internet presence, B&M has bucked the trend and thrived thanks to its ruthless focus on keeping prices low.
The Liverpool-based company, which was founded in 1978 and floated in 2014, has grown from its first store in Cleveleys, Lancashire to 656 stores across the UK generating £3.1bn of revenue. Described by a friend of mine as a ‘replacement to Woolworths’, the store’s mix of food, toys, stationery and household goods is striking a chord with bargain hunters, especially during lockdown where the company’s share price has risen over 78% from its March low.
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.
In this reshuffle it will just be a straight swap between ITV and B&M.
The UK market is not the UK economy
Since its launch 36 years ago the FTSE 100, like the UK economy, has continually 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 its composition over time.
Now 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. Often when the pound strengthens against other currencies such as the dollar, you’ll see the FTSE index fall as the value of profits made overseas from multinational companies are reduced when converted into pound sterling.
This week we learned Apple, valued at $2.3 trillion (£1.7tn) is now worth more than the £1.5tn total value of the all the companies in the FTSE 100. While Apple and US technology stocks in general have seen strong growth this year, by diversifying your investments across different industries you benefit from not putting all your eggs in the one basket should a particular sector fall out of favour.
Many investors looking for a low-cost way to access the performance of an index turn to tracker funds which aim to follow the ups and downs of a particular market.
Rather than focus on the top 100 companies, many UK tracker funds follow the FTSE All-Share Index which is made up of over 600 London-listed companies to get a broader, more diversified spread of companies. The Fidelity Index UK Fund does exactly that, with an extremely low ongoing charge of just 0.06% per year.
Find out more on the Fidelity Index UK Fund
Five year performance
|(%) As at 2 Sept||2015-2016||2016-2017||2017-2018||2019-2020||2020-2021|
Past performance is not a reliable indicator of future returns
Source: FE, total returns as at 2.9.20, in local currency
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. 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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