The highlight of the latest FTSE reshuffle?
The almost certain promotion to the FTSE 100 of an investment adviser that generated sales of just £160m last year.
Based on Tuesday’s closing prices, it looks like the Bristol-based Hargreaves Lansdown, which employees around 600 people and commands a market value of nearly £3bn, will be heading into the index to replace Bunzl, the distribution group.
(FTSE will announce its final decision at the close of business on Wednesday).
If so, there could be a serious scramble for stock. Traders reckon tracker funds will be forced to buy as many as 9m Hargreaves shares, according to some estimates. That may not sound a lot but the company, which runs the popular Vantage, direct-to-private investor fund supermarket, is an illiquid stock.
Even after last year’s director share sales, 50 per cent of the company is still controlled by its two founders Peter Hargreaves, who is also the chairman of Bristol City FC, and Stephen Lansdown.
Ironically, it’s these director sales that will force index trackers to buy more stock. That’s because FTSE, which is not that quick on the draw, will adjust the company’s investibility weighting to reflect the large free float. It should rise from 30 per cent to 50 per cent, there giving it a bigger weighting in the FTSE 100.
Based on that 50 per cent assumption, Citi reckons trackers will need to buy 5.6m shares — the equivalent of 6.3 times average daily volume!
Good luck with that.
At pixel time, shares in HL were 19.5p higher at 633.5p.
Related link:
Hargreaves Lansdown eyes record first quarter – FT