Industry Updates

FTSE 100 reshuffle demotes travel and energy stocks following coronavirus crisis

George Geddes

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FTSE Russell’s quarterly rebalance has resulted in a handful of travel and energy stocks being downgraded from the FTSE 100.

Effective 22 June, the four stocks to be removed from the FTSE 100 are travel companies Carnival and EasyJet and energy companies Centrica and Meggitt.

Between the beginning of 2020 and the end of May, Carnival’s and EasyJet’s share prices fell 71% and 52.5%, respectively, as a result of the coronavirus impact on the travel industry.

Europe lacks pure-play ETFs to exploit travel industry’s rebound

Similarly, Centrica’s value fell 59.5% and Meggitt fell 57.7% during the same period.

In replacement of the four companies, Avast, GVC Holdings, Homeserve and Kingfishers will be added to the FTSE 100 from previously being included in the FTSE 250.

In 2020, the FTSE 100 peaked on 17 January at £1.9trn total market cap. The index’s performance reached its lowest of £1.3trn on 23 March, the day the UK went into lockdown, which meant a decline of 34.7%.

Since then, the index has recovered reasonably well to £1.6trn which equated to a rebound of 28.6% since its lowest point.

As a result of the few inclusion to the FTSE 100, little impact is being made to the weightings of the sector exposures. The financials sector remains the largest exposure, accounting for 18.8% of the index which is up from 18.4%.

Consumer goods, energy and industrial sectors have all seen their exposures decrease as a result of the rebalance. Surprisingly, health care and telecommunications exposures have also fallen by 0.4% and 0.1%, respectively.

SectorExposure weighting as of 3 JuneExposure weighting post rebalanceFinancials18.4%18.8%Consumer Goods18.3%17.8%Health Care13.5%13.1%Consumer Services11.8%12.1%Oil & Gas11.1%10.7%Industrials10.8%10.3%Basic materials8.4%9.5%Utilities4.2%4%Telecommunications3%2.9%Technology0.6%0.8%

Source: FTSE Russell

"What we do is a rules-based process of ranking and slotting who will move in and out," Philip Lawlor, managing director of global markets research at FTSE Russell, told CNBC. "There is no subjectivity in this, it is purely an empirical quantitative process."

One issue with the demotion of the travel stock to the FTSE 250 is how trackers of the FTSE 100 will not benefit from the potential rebound the stocks are likely to see in the coming months.

FTSE Russell said the firm's principles do not take into consideration any forward-looking forecasting but rather reflect what the data shows for the previous period.

MSCI's quarterly rebalance, which completed at the end of May, also saw several travel companies downgraded from its standard indices.

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