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RESEARCH

FTSE Reshuffle Sees British Land Ejected

IMI promoted to the FTSE 100, but Ocado survives an expected drop.

After no change in March, the latest FTSE reshuffle has seen commercial property giant British Land (BLND) relegated to the FTSE 250 and engineering company IMI (IMI) making the grade to the elite club of 100 stocks. Ocado (OCDO), whose share price has been under pressure all year, survived an expected exit from the FTSE 100.

As our table shows, the FTSE 250, a broader snapshot of the British economy, sees five changes. These include ASOS (ASC), which is leaving the index, and real estate investment trust Empiric Student Property (ESP), which is joining. We recently looked at the volatility of REITs as part of our income special report week. With one REIT promoted and another demoted (British Land), it’s clear that the sector is going through a turbulent period. But REITS are a very wide umbrella and the dynamics in each sector can be very different.

British Land shares are off 15% so far this year, following a fall of 25% in 2022, as the commercial property sector, especially office space, adjusts to hybrid working patterns.

Crossing British Land on the up escalator is IMI, a company that has recently lifted its full-year earnings guidance after a decent first quarter update.

Why the Reshuffle Matters

These changes give us an insight into which sectors are in and out of favour, and which companies are on the up or struggling in the big league. It’s purely down to changes in market value, which can fluctuate a lot during the year.

Index provider FTSE Russell changes the constituents of its indices every quarter to reflect changes to Britain’s biggest companies.

Which companies move in and out of the FTSE 100 is based on their total market capitalisation at the end of the specified trading day.

To avoid the same borderline companies dropping out and back in every reshuffle, a company must be in the top 90 by market cap to be promoted. Likewise, to be demoted, the firm has to be below the 110th biggest company by size.

As in football, relegated stocks can be promoted again – and vice versa, so the main indices are “revolving doors”. An example is asset manager Abrdn, which lost its FTSE 100 spot in 2022 but returned in the December reshuffle.  

Index changes also matter from an ETF and index fund flow point of view: FTSE 100, 250 and All Share trackers have to adjust to changes whenever they’re made. My colleague Johanna Englundh has looked into the rise and rise of passive investing in a recent article.

Asset managers also have to buy and sell stocks to make sure they match the benchmark. And as the FTSE 100 is generally more liquid than other indices, inclusion in an index tends to boost flows into a particular stock. As more money moves into passive funds, index changes become more significant over time.

Greater liquidity means that buy and sell prices tend to be closer together (the bid-offer spread), making it easier for investors big and small to enter and exit positions.