If you’re invested in an FTSE 100 company, understanding how the regular reshuffle works is essential.
We explore the FTSE 100 review process and what to consider if a firm you’re invested in is demoted.
What is the FTSE 100?
The FTSE 100, also known as the Financial Times Stock Exchange 100, is a share index measuring the market performance of a portion of the stock market.
Specifically, the FTSE comprises the 100 most successful companies, according to their market capitalisation (or market cap) on the London Stock Exchange (LSE).
To qualify for FTSE 100 inclusion, companies must also be denominated in pounds and able to meet certain float and liquidity conditions.
The value of an index is defined by the price movements of included stocks, and the value of the FTSE 100 is often scrutinised.
This should not be surprising as every company in the FTSE 100 has a high market cap, a significant market presence and arguably lots of growth potential.
Companies in the FTSE 100 are attractive to investors and typically pay generous dividends.
The FTSE 100’s total dividend payout is expected to hit £78.7 billion in 2023, up from £76.1 billion paid out in 2022 (excluding special dividends), according to data from AJ Bell.
What is the FTSE 100 reshuffle, and how often does it happen?
The FTSE 100 is reshuffled by FTSE Russell, the index provider, every quarter according to market cap data from the end of the previous month.
Reshuffles occur in March, June, September and December, and when they do, some companies are added or demoted from the index.
With the latter, the company’s market cap has dropped far enough that it has fallen from the index.
At the time of writing, the last reshuffle was implemented in September 2023 based on closing figures from 30 August.
Four companies were added, including Marks & Spencer as a re-entry, while Abrdn, Hiscox, Johnson Matthey and Persimmon were demoted.
So, when is the next FTSE 100 reshuffle? The next will be implemented in December, based on figures from late November.
After this, there will be a reshuffle in March 2024, and in June 2024.
What happens if your investments are affected by an FTSE 100 reshuffle?
If you’re invested in a passive fund tracking the FTSE 100, you’re unlikely to be impacted hugely by a reshuffle, since your money will be leveraged on the performance of the whole index.
But if you’ve directly invested in an individual FTSE company, you’ll of course, have concerns if it is demoted.
It’s important to remember that a company’s outlook is rarely purely negative, and the demotion could be due to a temporary issue that is resolved soon, so the company may recover and boost its market cap.
You may choose to sell your shares in a company, or you may decide to wait it out.
It’s worth doing your research by looking at:
Why has this demotion happened, and is it likely to be permanent?
How will the demotion affect the long-term performance of the company?
Are there plans to pivot the business, and do these seem viable?
Are there significant changes ahead for the business or broader industry, and can these changes be navigated?
Keeping up to date is key
You can stay up to date on the latest news from FTSE 100 listed companies via numerous sources such as Investegate, the London Stock Exchange and specialist investment sites and magazines.
If you’re considering investing in the FTSE 100, either actively or through a passively managed fund, we’d recommend talking to an experienced financial adviser.
Unbiased can connect you with a qualified financial adviser to discuss your investment strategy.