Royal Mail and ITV on the up; why promotion to the FTSE 100 matters
The June FTSE reshuffle is coming up it came early for Royal Mail PLC (LON:RMG) this week and with it the usual excitement about changes. The popularity of index-tracking funds ensures that stocks about to make the move into the big time, defined in this instance as inclusion in the FTSE 350 (i.e. the FTSE 100 FTSE 250), tend to enjoy a bit of a boost ahead of their elevation to the index. An index tracking fund is a fund that seeks to emulate the performance of a specific stock market index by ensuring its portfolio weightings mirror those of the index it is tracking; thus, for instance, if the market capitalisation of BP PLC (LON:BP) is equal to 7.0% of the market capitalisation of the FTSE 100 as a whole, then fund that is tracking the FTSE 100 would adjust its shareholdings to ensure BP is 7.0% of its portfolio. Index trackers are not interested in buying shares that are not in their benchmark index; their selling point is that they are cheaper than "discretionary" (i.e. stock-picking) funds because they dont have to spend all that time, effort and money researching companies.No one seems to blame these funds for tracking the "wrong" index but they do occasionally risk the ire of investors if they are not bang-on in emulating the performance of their chosen index.
Royal Mail and ITV on the up; why promotion to the FTSE 100 matters
The June FTSE reshuffle is coming up it came early for Royal Mail PLC (LON:RMG) this week and with it the usual excitement about changes. The popularity of index-tracking funds ensures that stocks about to make the move into the big time, defined in this instance as inclusion in the FTSE 350 (i.e. the FTSE 100 FTSE 250), tend to enjoy a bit of a boost ahead of their elevation to the index. An index tracking fund is a fund that seeks to emulate the performance of a specific stock market index by ensuring its portfolio weightings mirror those of the index it is tracking; thus, for instance, if the market capitalisation of BP PLC (LON:BP) is equal to 7.0% of the market capitalisation of the FTSE 100 as a whole, then fund that is tracking the FTSE 100 would adjust its shareholdings to ensure BP is 7.0% of its portfolio. Index trackers are not interested in buying shares that are not in their benchmark index; their selling point is that they are cheaper than "discretionary" (i.e. stock-picking) funds because they dont have to spend all that time, effort and money researching companies.No one seems to blame these funds for tracking the "wrong" index but they do occasionally risk the ire of investors if they are not bang-on in emulating the performance of their chosen index.