FTSE reshuffle: The rising investment trusts that could benefit from fresh buyers

While it’s bad news for one healthcare trust, a few promotions in the FTSE indices have been confirmed.

The outcome of the latest reshuffle of FTSE UK indices has been released, with the potential to draw in a a fresh pool of buyers for several investment companies. 

Among notable investment trusts, Bellevue Healthcare (BBH ) will be demoted from the ‘mid-cap’ FTSE 250 index after lacklustre performance and heavy share buybacks following a newly-introduced zero discount policy. 

Meanwhile, Pantheon Infrastructure (PINT ) and the strongly-performing Ashoka India Equity (AIE ) will graduate from the FTSE Small Cap to the 250. 

The changes are based on closing share prices yesterday and will take effect after markets close on Friday 20 June. 

According to Numis analyst Ewan Lovett-Turner, ‘the most significant impact’ will come from small-cap trusts entering and leaving the FTSE All-Share, which can lead to ‘meaningful buying’ from index tracking funds.

This time, MIGO Opportunities (MIGO ), which itself specialises in investing in trusts and has a £65m market capitalisation, and UK smaller companies trust Rockwood Strategic (RKW ), valued at £113m, have made the cut for the All-Share. Manager Richard Staveley is Citywire AA-rated for Rockwood’s strong performance. 

Speculating on the buying from index funds that could result, Lovett-Turner said: ‘It’s difficult to know the precise impact, but we typically expect buying in the region of 8-10% of share capital over time, although timing of buying varies with some market participants trying to trade based on potential changes, others when announced or effective, whilst others may take time for smaller positions.’

In addition, VPC Specialty Lending (VSL ) and Abrdn Property Income (API ) will be deleted from the UK index altogether. Both are in the process of winding down. 

In Lovett-Turner’s view the impact of moving in and out of the FTSE 250 is ‘generally less significant’ due to less weight of money tracking the index, albeit a promotion here is still likely to put companies ‘on the radar’ of more investors.

Another positive, laid out by Panmure Liberum sector analyst Shonil Chande, is that funds added to the FTSE 250 ‘typically see a material reduction in bid/ask spreads, with improvements ranging from 11 to 67 basis points, depending on the fund’. That reduces trading costs. 

Panmure Liberum was particularly glowing about what this means for global infrastructure trust PINT which bucked the trend for falling portfolio values among its peer group last year, after it realised profits from its first exit. 

‘Based on the subset of renewable and infrastructure funds, the average bid/ask spread has been 21 basis points lower when funds have been in the FTSE 250,’ Chande said.

Panmure Liberum currently rates PINT shares as a ‘buy’, forecasting an average NAV total return of 13% for the trust over the next three years. In a note this week, the broker shared the conviction that PINT stands to deliver ‘the best returns amongst the core infrastructure funds over the next year’.