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The FTSE All Share Index Quarterly Review is based on closing prices on Tuesday 31st May and is due to be announced on Wednesday 1st June, with changes effective from Monday 20th June.
- Royal Mail PLC (LON:RMG) and ITV plc (LON:ITV) face potential demotion from the FTSE 100
- Centrica PLC (LON:CNA) and Johnson Matthey PLC (LON:JMAT) could be promoted to the FTSE 100
- JLEN Environmental Assets Group Ltd (LON:JLEN) and Foresight Solar Fund Ltd (LON:FSFL) set to enter the FTSE 250,
- Puretech Health PLC (LON:PRTC) and Baillie Gifford US Growth Trust PLC (LON:USA) contenders to leave the FTSE 250
Q1 2022 hedge fund letters, conferences and more
This Long/ Short Equity Firm Sees A Time-Arbitrage Opportunity In This Pest Control Merger
Yost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm’s benchmark, the MSCI World Index, declined by 5.2%. The funds’ returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown summarises the runners and riders:
“The latest quarterly review comes amid an evaporation of investor confidence as worries ratchet up about the impact of soaring inflation and rising interest rates on l growth at a time when the global economy is still adjusting to changes brought about by the pandemic. A change from lockdown behaviour with e-commerce sales falling and streaming services struggling is partly behind the arrival of Royal Mail and ITV in the FTSE 100 drop zone. Centrica’s fortunes have lifted along with higher energy prices, as it’s managed to deftly navigate volatile costs while investors are giving Johnson Matthey the benefit of the doubt even though it hasn’t as yet carved out its future in the electric world. In the FTSE 250 there is some evidence that the appetite for responsible investing remains resilient with JLEN Environmental Assets Group and Foresight Solar Fund set to enter the FTSE 250, while PureTech Health and Baillie Gifford US Growth Trust appear to be among the casualties of the flight away from risky assets.
Potential For FTSE 100 Demotion
Royal Mail made a rapid recovery in 2021 but its recent share price weakness could see it fall out of the FTSE 100 as it’s once again in the drop zone. Some investors appear to think its pandemic performance has now come unstuck with parcel numbers on the decline, but although volumes have fallen from last year’s highs, they crucially appear to be rebasing at a much higher level than pre-pandemic. Royal Mail’s accelerated modernisation drive has also been boosting profitability and the move to greater automation should make the company more flexible to deal with peaks and troughs of demand going forward. However worries about inflation are weighing on the stock, with the company warning that stamp prices may have to rise again as it faces a raft of higher prices from energy to labour costs, but here again increased automation should help it weather the storm.
ITV is at risk of changing channels from the FTSE 100 big league to the FTSE 250 mid cap as worries rise about the risks in the streaming space. Competition is fierce in the sector, as the recent subscriber losses for Netflix have shown. There are concerns that consumers will be less willing to shell out for the upcoming ITVX venture particularly given the cost of living crisis, and worries have risen about advertising revenue as a recession looms. Although ITV’s Studios business offers growth potential given there is such a high demand for quality content, running a production company is an expensive business which is reliant on big hits so if the shows don’t land well, there could be a hit to the bottom line, given the Studios business makes up around a quarter of group profit. ITV’s acceleration of digitisation makes sense but there are plenty of headwinds facing the group which is why the share price has fallen back.
Potential For FTSE 100 Promotion
Centrica’s solid first quarter performance showed evidence of the fruits of the turnaround strategy and its most recent update highlighted that full year profits would come in at the top end of expectations. That propelled shares higher, placing the company in pole position for re-entry into the FTSE 100. As well as higher revenues from its nuclear and gas production business, cost savings have also boosted profits and its balance sheet is also looking a lot healthier thanks to disposals. There are still clouds hovering in the form of higher wholesale costs but Centrica’s hedge positions have proved to be a protective haven during recent surges in energy costs. Already British Gas was the dominant provider of gas and electricity and it’s now also taken another 750,000 customers under its wing as other providers went bust. The current pricing structure limits what it can make on bills, but by gaining market share, alongside another increase in the energy price cap in the Autumn puts Centrica in a stronger position. It has also stressed it’s piling £50 million into supporting customers through an energy support fund, new apprenticeships and more customer service roles.
Johnson Matthey’s approach of stripping the operations back to basics is starting to be cautiously welcomed by investors after the initial shock of the company exiting the battery scene. Its share price has been recovering with full year operating profit still in line with expectations, which makes it a contender to accelerate back into the FTSE 100. Its core business is highly profitable and catalytic converters, where it makes money, isn’t going to dry up immediately. However the shift to the new electric world is gathering pace and the race is on to find other new opportunities for growth. In many ways the company is well placed to seize on fresh potential with a new CEO, Liam Condon in charge who has a cash hoard at his disposal. But investors may be disappointed if fresh deals don’t land relatively soon as the clock is ticking on the traditional automobile business.
Other Potential Movers And Shakers In The FTSE 250 Reshuffle
Despite the volatility facing the financial markets, there is still strength in the appetite for ESG investing with JLEN Environmental Assets Group, formerly John Laing Environmental Fund, sharply rising in value and angling for position to enter the FTSE 250. The British investment trust offers an opportunity to invest in a portfolio of projects focused on renewable energy infrastructure. The Jersey based investment company, Foresight Solar Fund has regained shine amid a change in the direction of its diversified portfolio. It won shareholder approval to focus on battery storage alongside its ground based solar plants and there appears to be confidence in the strategy bearing fruit with shares climbing sharply since the start of the year, which could help propel it back into the FTSE 250. Biotech company PureTech Health could be heading out of the FTSE 250, a casualty of investors increasingly cautious approach to risk. The nature of the product pipeline makes the results quite volatile, although the broad spectrum of its drugs could help offer longer term resilience. The Baillie Gifford US Growth Trust has also fallen out of favour as investors ride back their bets on high growth companies in an era of rapid monetary tightening, and it’s also contender for demotion from the FTSE 250.”
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