A review by FTSE of its World index series, due to go live at the Friday close will lead to the largest benchmark turnover in over a decade, as market index trackers move to reflect the change in their portfolios, Societe Generale strategists say.
The move will result in a large weight decrease in LVMH and UK drinks firm SABMiller and increases in Swedish clothing company Hennes & Mauritz and German chemical firm Linde, among other European stocks, John Carson, head of index research at Societe Generale, says.
First announced in June 2012, the review will see the indexes more closely reflect the actual free float of the companies within them, using increments of 1 percent as opposed to ones as wide as 25 percent.
That means investors who mirror the composition of the indexes closely could find themselves with either too many or not enough shares in some firms, which in turn could result in a sharp increase in traded volumes.
French luxury goods firm LVMH is among those likely to be hit the most as it has free float of just over 50 percent and so under the old rule was banded together with firms with a free float of 75 percent, meaning it was over-represented in the index.
Passive investors, such as tracker funds, may decide to reweight the stock on Friday to ensure they mirror the index in time for the open on Monday, while active managers pegged to a FTSE World index series benchmark may also make changes due to large country changes in the rejigged index.
Other companies which could see increased selling interest include French drug company Sanofi and UK-listed miner Xstrata, while on the flip side Swiss food company Nestle and UK bank HSBC could see increased demand. The largest addition to the Europe portion of the index is Aberdeen Asset Management.
In total the change there are 75 additions, 106 deletions and over a 1,000 float changes across FTSE’s developed market indexes, contributing to a potential global flow of $12 billion, Societe Generale Quantitative Research estimates.
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