This is particularly the case for those moving into the FTSE All Share, as this is the index the vast majority of passive funds track in the UK. According to Numis Securities, FTSE trackers represent around 10 per cent of share capital in the index, which goes to show how important they are to the performance of the underlying companies.
The latest quarterly review for this year is due to be announced on 11 September, with the changes effective after the close on 20 September.
Below are the key changes anticipated by investment trust specialist Numis. These companies may be of interest to investors aiming to cash in on a short-term movement in a share, or who are looking for an ideal opportunity to buy a trust for the longer-term.
Investment trusts
Ewan Lovett-Turner, associate director of investment companies research at Numis, says that an upgrade into the major UK index represents a potential buying opportunity for investors.
"You can either get a bit of price action, or if the management of the trust ends up satisfying the extra demand with new issuances, then you’ll get the benefit of increased liquidity rather than a jump in share price," he explained.
"All of the trusts [that are likely to enter the All Share] are of a decent size, but any increase in liquidity should be seen as a good thing."
Lovett-Turner estimates that the threshold for entry into the FTSE All Share is £85.2m and that five investment companies will become new members, subject to meeting liquidity requirements, into the All Share following recent launches.
All five are new launches, and so have little to no track record to speak of: the Renewables Infrastructure Group, Polar Capital Global Financials IT, CVC Credit Partners European Opportunities IT, Bluefield Solar Income IT and JP Morgan Global Convertibles Income IT.
The Renewables Infrastructure Group is a £295m trust that attempts to provide investors with long-term dividends while preserving capital value. It invests in a range of operational assets that generate electricity from renewable energy sources.
Investments will be focused in the UK and northern European countries, including France, Ireland, Germany and Scandinavia. However, at any given time at least 50 per cent of assets must be invested in the UK.
Onshore wind farms and solar PV parks will dominate the portfolio, with all other forms of energy technologies limited to 10 per cent.
The trust is headed up by InfraRed Capital Partners. It is currently yielding 5.8 per cent and is on a 4.5 per cent premium.
The £148m Polar Capital Global Financials IT attempts to deliver a growing income as well as capital appreciation by investing in a global portfolio of companies in the financial sector, including banking, insurance and property.
It was launched in July this year and has made a decent start, returning 3.39 per cent with little volatility.
Performance of trust and index since launch
Source: FE Analytics
The trust is currently yielding 3.5 per cent. It is managed by Nick Brind and John Yakas, and is globally diversified across developed and emerging markets.
Demand has already been significant for the trust, pushing it on to a premium of 11 per cent.
The CVC Credit Partners European Opportunities IT is one of the bond-focused trusts available to investors. It aims to deliver regular income and capital appreciation by investing in sub-investment grade debt and is thus comparable to an open-ended fund in the IMA Sterling High Yield sector. However, it invests across Europe rather than exclusively in the UK.
The trust is team managed, is yielding 4.9 per cent and is on a premium of 2.3 per cent.
The £128m Bluefield Solar Income IT is another dividend-paying trust. It invests in a portfolio of large-scale UK-based solar energy infrastructure assets and is currently yielding 4.1 per cent. Once again it is on a premium, this time of 3.1 per cent.
The JP Morgan Global Convertibles Income IT has made a slight loss of 0.49 per cent since its launch in June this year.
Antony Vallee’s £152m trust invests in convertible securities, predominantly in the US, although it also has exposure to Europe. It is currently yielding 4.4 per cent, is on a premium of 3.5 per cent and is slightly geared.
No closed-ended funds have been demoted from the FTSE All Share, although there has been some movement between sub-indices.
The JP Morgan Indian IT and Utilico Emerging Markets IT have been relegated from the FTSE 250 to the Small Cap index, thanks to the significant losses both have endured in recent months.
Performance of trusts over 6 months
Source: FE Analytics
However, Lovett-Turner says a demotion such as this should not have too much effect on the trusts, because most index funds seek to track the All Share rather than the FTSE 250.
Companies
Looking at individual companies, Lovett-Turner expects a number of newly listed companies to come straight into the FTSE All Share and also tips some promotions and demotions between the sub-indices.
"We expect there to be six other new entries into the FTSE All Share, including Coca-Cola, which we expect to enter directly into the FTSE 100 after it was given UK nationality classification," he said.
"We think there will be three new entries into the FTSE 250: Partnership Assurance, Al Noor Hospitals and Entertainment One, as well as two new entries into the Small Cap: Caracal Energy and Tyman."
Entertainment One is a favourite with FE Alpha Manager Mark Slater and is currently the biggest holding in his MFM Slater Growth portfolio. FE Alpha Manager Philip Rodrigs also has a major position in the company in his Investec UK Smaller Companies fund.
Lovett-Turner expects Greggs, Salamander Energy, Anite and Bumi to be relegated from the FTSE 250 to the Small Cap, with Cineworld and Greencore going the opposite way. FE Alpha Manager John McClure is currently tipping Cineworld as a way of playing the recovery in the UK economy.
Sports Direct is expected to be promoted from the FTSE 250 to the FTSE 100, taking the place of government services company Serco. Eurasian Natural Resources, which has had a disastrous 12 months with losses of 34.79 per cent, is also expected to be relegated to the mid cap index.
