Sentiment on the mid cap area of the market remains positive despite the upcoming rebalance which is...
Sentiment on the mid cap area of the market remains positive despite the upcoming rebalance which is likely to see a number of technology firms drop back into the smaller companies index.
John Hatherly, head of global analysis at M&G, says negative investor sentiment towards technology is likely to be reflected in the FTSE 250 rebalance in December, with a high proportion of those expected to leave the index to be technology-oriented companies.
He says: "The FTSE 250 currently has an 8% weighting in technology, which will be diluted into the small cap index. This will only affect tracker funds."
David Harbage, fund manager at Barclays Stockbrokers, says investors have become disenchanted with technology stocks. He adds if this continues, the weights of technology stocks in the FTSE 250 index will diminish.
Within the mid 250, Harbage favours house building companies, which he says have performed well over the past three to six months. He cites Barratts, which is a big liquid company and has a market capitalisation of £700m. He says: "It has increased its earnings per share by 20%."
Andy Brough, fund manager of the Schroders UK Mid 250 fund, says when the FTSE 250 was rebalanced in June 2000 and September 2000, 44 changes were implemented to the index. When it is next rebalanced on 6 December 2000, Brough anticipates the changes will be less dramatic in number. However, he still believes there will be a considerable amount of stocks moving.
According to Brough, this large movement is down to the volatility of the UK stock market. He says AB Foods and Scottish & Newcastle both fell out of the index in September, and will probably move back in December.
He says this movement of stocks keeps the FTSE 250 index refreshed on a regular basis.
Brough says: "The mid cap sector offers exposure to all sorts of stocks. In the mid cap market, it is possible to invest in both growth stocks and companies that are at a transitional stage. In addition there are a lot of takeover stories in the mid cap range, increasing its attractiveness as a sector."
Brough says there are no blue sky opportunities at the moment. He is keen on support services and targets stocks which have visibility of earnings. Brough says he finds the FTSE 250 is a lot more appealing than the large cap index due to its low exposure to telecom companies.
Tim Gregory, head of UK equities at Gartmore, is optimistic about the market in general. He says Gartmore does not have any particular favourite size bias, being more interested in sectoral biases.
He says: "Within all areas of the market, large, medium or small we see some attractive ideas. However, within the mid cap market specifically there are some very exciting companies that have migrated from small cap. They have developed what we think is a sustainable business model but have gone through that phase of being somewhat smaller and we would think that they might be ready to make the next leap to being FTSE 100 companies. That is the critical stage."
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£80bn funds under calculation