Credit crunch and housing slowdown impacts FTSE reshuffle

Alliance & Leicester, Tate & Lyle, Home Retail Group and Persimmon have been relegated from the FTSE100 and replaced with Petrofac, Ferrexpo, Drax Group and Invensys in today's (Monday 23rd June) quarterly indices reshuffle. Retail stockbroker, The Share Centre comments on what this is likely to mean for investors.

Nick Raynor, Investment Adviser at The Share Centre says: "It's of no surprise that Persimmon, the only housebuilder currently in the FTSE100 is being demoted and that Alliance & Leicester is also being shown the door after the turmoil within the banking industry.

"Replacing these are Drax Group (energy provider), Petrofac (oil support services), Ferrexpo (mining) and engineering company, Invensys. This is significant as investors should take note that commodity companies, and those with a link to the sector, are increasingly becoming the main driving force behind the FTSE100.

"The importance of this for investors is that it further highlights which companies have fallen victim to the credit crunch and housing market slowdown. Whereas traditionally it was the banking sector everyone looked to for market guidance, the credit crunch crisis has put paid to that."

However, Raynor adds that existing investors in the relegated companies could also benefit: "Investors could consider the FTSE100 leavers as a buying opportunity as stocks that fall out of the FTSE100 typically enjoy an immediate resurgence. It is also likely FTSE 250 tracker funds will pick up on these as they exit the top market.

"In addition investors who have bought into Drax, Petrofac, Ferrexpo and Invensys will be able to show a good return on their investment as the shares prices have risen and are set to continue to perform well. For example, despite Petrofac's share price rising 30% since January we still feel that there is more mileage for investors looking for exposure to the commodity sector."

Under FTSE indices' rules, a listed company will achieve automatic promotion to the FTSE100 if it is named as one of the UK's 90 biggest companies by market capitalisation. Similarly, if a company moves outside of the top 110 stocks it will be automatically demoted.