Index entry can be a golden ticket as ETFs and funds dive into a new entrant’s shares automatically.
But the opaque nature of this process was shown in the uncertainty around BHP’s (BHP) announcement that it would go from a premium to standard listing as a result of its decision to get rid of its dual-listing structure. BHP said last month it ‘understands’ it would not be eligible under current rules for a premium listing. This means London will lose the largest member of the FTSE 100 from the index.
The latest inclusions and exclusions also have market observers asking questions, given the subjective nature of the decisions.
The in-crowd for the latest FTSE 100 reshuffle include Dechra Pharmaceuticals (DPH), Wm Morrison Supermarkets (MRW) and Meggitt (MGGT), while ITV (ITV) and Weir Group (WEIR) have been relegated and Just Eat Takeaway.com (JET) has lost its spot after failing to drop its Euronext Amsterdam listing. This meant, in the words of FTSE Russell, “the company’s nationality has been reassigned from the UK to the Netherlands” and it lost its premium listing. It had held onto UK nationality through a promise to delist in Amsterdam from 2019.
But gold company Endeavour Mining’s (EDV) winding path to the FTSE 250 shows how malleable these rules can be. For a company that has included index entry plans as a slide in its corporate presentation, it was no sure thing.
To be included in the FTSE 250 index, a company has to be big enough and have enough liquidity to justify being there. Endeavour passes the size test easily (a £4bn-plus market capitalisation) but the trading volumes in London are helped by its buyback programme, which began in March and is still running.
But it was the company’s off-exchange trading that got it over the line, according to Endeavour’s vice president for strategy Martino De Ciccio. He said FTSE Russell had initially kept Endeavour’s nationality as Canadian, given its low trading volumes, but changed its mind when shown the ‘off-exchange’ (OTC) trading volumes, which got it over the 0.025 per cent monthly median share turnover hurdle. Buybacks have also helped here, although even without the buybacks Endeavour would still be eligible for inclusion based on the FTSE Russell liquidity test.
Endeavour's tale sends a message for those kicked off the FTSE 100 or 250: it can be a good thing. The miner lost its place in the S&P/TSX Composite Index in Canada soon after listing in London. De Ciccio said it was a surprise but given investors had a new exchange to go to, it boosted liquidity across the pond, the removal was “a lucky coincidence”, and Endeavour’s share price actually went up. Read our latest analysis of Endeavour - Double hedge with gold miner Endeavour.
Among other entrants to the FTSE250 were cyber security specialist Darktrace (DARK), which crowned a strong debut period on the London market with ascension to the index after its shares more than doubled to give it a £4.2bn valuation. Read our analysis from the time of its listing - What investors need to know about Darktrace. Meanwhile Draper Esprit (GROW), a venture capital specialist which has benefited from its investments in companies such as Trustpilot (TRST), Wise (WISE) and Cazoo over the past year. Read more - It pays to pay for private equity.
