abrdn's departure from the FTSE 100 has been confirmed following weeks of speculation.
It was made official last night (Wednesday 31 August) when the FTSE Russell announced its FTSE All Share Index Quarterly Review, which is based on Tuesday 30 August closing price. At that point, abrdn had slipped to the 118th largest listed company in the UK.
Its demotion from blue-chip status to the FTSE 250 is the latest in a run of bad news for the Scottish based fund group. Nearly 18 months after its rebrand the firm's half-yearly report revealed that profits were down 18% compared to the same period last year and IFRS tax losses of £320m.
In the same report, it lowered its outlook and announced plans to close or merge 100 funds shortly after. This was after 12 members of its multi-asset team took voluntary redundancy and an earlier five left after the UK and European equity teams were merged
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the firm's demotion was partly driven by volatility in financial market and "being seen as ‘behind the curve' in its ESG fund offerings", which she said "currently lag peers and demand for ESG investments is on the rise, which puts it in a tricky position". Ahead of the announcement, Streeter said huge geopolitical uncertainty, soaring inflation and worries about economic growth had been "challenging" for abrdn and "operating profits came in lower than expected as fund flows reduced further". "But this is not just a recent problem, assets have been walking out the door for years," she added. European fund selectors shift towards private markets Although the business itself has been struggling abrdn's actual portfolios have been delivering ahead of its respective benchmarks Streeter pointed out, "which is a key requirement if fund investors are to be tempted back". Changes in the makeup of major indices such as the FTSE 100 have a big impact on investors because the amount of passive money tracking them has grown massively the past few years, Ben Laidler, Global Markets Strategist at social investment network eToro, explained. He said the amount invested in global exchange traded funds has almost doubled to a dramatic $9.1trn just since 2018. Elsewhere in the reshuffle, the "horror story" for Cineworld continued as it was set to leave the FTSE All Share after it filed for bankruptcy. Streeter said this index captures 98% of the UK market, demonstrating just how far Cineworld's "star has fallen". The company has struggled to bounce back after Covid, laboured by the high levels of debt it took on during the lockdown. Other stocks exiting the FTSE 100 include Hikma Pharmaceuticals and Howdens Joinery, the latter hit by the cost-of-living crisis putting a squeeze on consumers' renovation budgets. Filling these spaces will be F&C investment trust, ConvaTec Group, Greencore Group, Provident Financial, Tyman and XP Power. F&C investment trust is the oldest closed-ended portfolio in the world and its promotion will be closely watched by the market. BlackRock Continental European Income added to Hargreaves Lansdown Wealth Shortlist It joins the biggest investment trust Scottish Mortgage, alongside 3i and Pershing Square Holdings, making this the first time four investment trusts have been in the index at the same time. Nick Wood, head of fund research at Quilter Cheviot, said that although F&C's performance is ahead of the FTSE 100 over three years (around 9% to the end of July vs 26%) investors should bear in mind that trust has exposure to some areas that have done well over the years but have struggled in 2022, such as US technology firms which make up its largest equity holdings, and has over 10% invested in private equity. "These areas may take advantage of long-term structural trends, but in the period of rising interest rates we are currently going through, their valuations can become increasingly challenged. With the outlook remaining cloudy in this regard, we could see additional volatility for F&C as it enters the blue-chip index," he said. "While promotion can bring more profile and additional buying activity from passive vehicles, it is no guarantee of strong performance. Those looking at F&C as a potential investment should not simply base their investment case on entry into the FTSE 100". These changes will come into effect at the close of Friday 16 September.
