Trust will return to the blue-chip index from 24 March after a seven-year absence
The £1.42bn Foreign & Colonial Investment Trust is set for a return to the FTSE 100, the first time it has been in the blue-chip index under Jeremy Tigue's management.
The trust was last in the FTSE 100 seven years ago, between December 1995 and June 1996, under the stewardship of Michael Hart.
The FTSE's latest quarterly rebalancing, based on close-of-market figures on 11 March, means the trust will be included in the FTSE 100 from 24 March.
The rules governing the rebalancing state companies whose market cap has grown enough to rank them among the top 90 firms are promoted, while those whose market cap has fallen lower than that of the largest 110 companies are demoted to the FTSE 250.
Provident Financial, Kelda Group and Cable & Wireless are also joining the list of leading blue chips, at the expense of Rolls Royce, British Airways, Royal & SunAlliance Insurance Group and Invensys.
The FTSE 250's latest rebalancing will see Perpetual Income & Growth promoted from the FTSE Small Cap Index with effect from close of business on 21 March.
Investors in the F&C Investment Trust may enjoy a pick-up in the share price as FTSE 100 trackers funds, comprising some £10bn in assets, according to Bloomberg, buy into the stock to rebalance their exposure.
Paul Locke, an analyst at HSBC, said the discount had tightened to 6.6% on news of its inclusion in the blue-chip index and he expects this to narrow further as the remaining index players look to build up their position in the stock.
'Most index players have not bought into the stock yet and many won't up to and after the rebalancing comes into effect on 24 March,' said Locke. 'The trust could shift to a 5% premium easily.'
Tigue played down the anticipated impact of tracker funds, saying he believed much of passive managers rebalancing has already gone through.
He noted: 'Some people think the trust will go to a premium but we do not think this will happen. If we went to a premium, there would be such a difference between us and other trusts the market would act as a correcting mechanism.'
He added rival generalist trusts, such as Second Alliance and British Empire, are trading on discounts of around 10% and investors would be likely to opt for these if F&C did reach a premium.
Some 73% of F&C is held in retail hands, however, with roughly a quarter of the trust's ownership held through regular savings schemes. Given this is regarded as sticky money, the company's free-float is effectively reduced, which could well lead the supply and demand dynamic pushing the shares to a premium, Locke argued.
'If the product is in demand, such that people are willing to pay a premium, there a the distinct possibility of the trust issuing more stock,' he added.
The vehicle remains defensively positioned but Tigue has upped its gearing from 8% at the start of the year to 12% presently. He said this was part of an ongoing strategy to balance the defensive nature of the portfolio with any potential rise in the market and gearing could reach 15% by the summer.
'I do think the markets will end the year higher than they are now and we have deliberately chosen to take advantage of that by increasing the gearing,' Tigue added.
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