The latest changes in the composition of the FTSE 100 and FTSE 250 indices say much more about the s...
The latest changes in the composition of the FTSE 100 and FTSE 250 indices say much more about the state of the market than the state of the companies involved. Here, if any further indication was needed, was a demonstration of the phenomenal rise of the tellytechs - the telecom, media and technology stocks which have made most of the running over the last few months.
In the same way that share prices of even large companies now seem to move, not by one or two percentage points a day, but in huge leaps and drops of 20% to 30%, sectors, rather than companies, are being relegated or promoted. The quarterly reviews commonly yield big changes but the wholesale turnover announced last week was breathtaking. Nine blue-chips were axed from the FTSE 100, including venerable but beleaguered Whitbread, founded in 1742 and one of the founder stocks at the creation of the index in 1984.
Chunks of substantial sectors were banished from the FTSE 250 - Persimmon, Beazer, Bryant and Bellway representing the rout among housebuilders; Weir Mckechnic and Spirax-Sarco among the engineers and beloved brewers Wolverhampton & Dudley, and Greene King.
A place in the top indices used to be a company's lifetime ambition. Some of the new stars have been in the public domain for all of three months. Among the 29 newcomers were software company Axon, which floated a year ago at 175p but touched £17.30 on the news of its accession to the big time, and a clutch of other enterprises familiar mostly to techno-nerds: Anite, Scipher, Royalblue, InterX and 365.
A few, like Torotrak, Singer & Friedlander, Euromoney and Capital Shopping Centres, have been stocks to keep an eye on for some time. Some, like Cambridge Antibody, Oxford Glycosciences and SkyePharma, hail from the spooky 21st century Planet Biotech. Who knows what they do, really do?
Investors have already been rocked by the 'Vodafone' effect, where they are struggling to get their portfolios up to the 13% index weighting in the stock. Selling off what they can to achieve it has dragged down other companies and sectors, The Vodafone/Mannesmann merger (voted for by fund managers) has stoked the debate about benchmarking, Bacon & Woodrow are working on a multinational index which might help, but that will only be of use next time round.
The market has become increasingly concentrated and volatile. But at least the dot.coms are beginning to spread their glory around a little. If the first wave of ascendant tech companies were pure hardware or software, the second wave will include companies able to use that technology intelligently to enhance products in their own fields. Reincarnation awaits for some of those initially condemned as 'old economy' relics.
A year ago, the media sector was considered a prime target for cannibalisation by the internet and the web. But as it began to dawn on investors that the net is effectively only another delivery channel and still needs product to carry, so the sector bounced back. Crysalis, Incepta and Scottish Radio, with their new status, show how its done.
Others will be able to make the leap into the cyber age. Distribution companies - deliveries, couriers and storage, are one of the more unlikely contenders, Until teleporting becomes a reality, someone has to get the product to the front door of the online consumer. Selected financials might also have a fighting chance, if the prophets in the industry can drag the focus away from the damaging stone age row over extra charges for ATMs. Cash back? Yes, please!
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December 2018 or early 2019
Feasibility study due