The latest FTSE index reshuffle has dealt a significant blow to two prominent investment firms: Abrdn is set to be relegated from the prestigious FTSE 100, while Liontrust will lose its place in the FTSE 250. According to Investment Week, these changes are a direct result of market forces, rather than any external economic indicators. The quarterly review, which assesses companies based on their market capitalisation, has resulted in Abrdn's share price and overall valuation falling short of the top 100 UK-listed firms.
The FTSE index reshuffle occurs four times a year – in March, June, September, and December – with companies typically promoted or relegated based on their market value relative to other constituents. This time around, Abrdn's exit from the FTSE 100 is a stark reminder that even well-established firms can struggle to maintain their position if their market valuation declines. Conversely, those entering the indices have seen their market capitalisation grow sufficiently to qualify.
The impact of these changes will be felt most acutely by passive investment funds and exchange-traded funds (ETFs) that track these indices. Fund managers whose portfolios are designed to mirror the FTSE 100 or FTSE 250 will be compelled to sell shares of companies being relegated, such as Abrdn and Liontrust, and buy shares of those being promoted. This mandated trading can create temporary selling pressure on outgoing stocks and buying pressure on incoming ones, potentially affecting their short-term share prices.
Abrdn's exit from the FTSE 100 marks a significant setback for the company, which manages billions in assets. Its share price performance has been underwhelming in recent years, reflecting broader challenges facing the firm. Liontrust's departure from the FTSE 250 similarly underscores its period of underperformance relative to its peers within that index.
The changes underscore the dynamic nature of the UK stock market, where individual company performance and investor confidence can shift rapidly. The Bank of England's monetary policy and broader economic conditions undoubtedly influence market sentiment, but these specific index changes are a direct consequence of companies' ability to adapt to changing market conditions and maintain their market value.