Passive Investors Could Face Stock Squeeze

Passive investors could face a stock squeeze with the next FTSE 100 reshuffle, as the impending addition of UAE based health care company NMC Health could lead to tracker funds spending around £31 million in response.

UNDEFINED - Thursday, August 31, 2017

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The company has a market value of more than £5.4 billion, although only 40 percent of its shares are currently freely floated and the control of the group is squarely in the hands of Bavaguthu Raghuram Shetty and his group. The NMC’s joint non-executive chair founded the company four decades ago and has kept hold of a 24.3 percent stake in it.

Trackers would need to spend more than £30 million on shares, which is more than seven days of average daily volume in the stock, and while passive funds often try to use derivatives contracts to pre-empt any major listings changes, the surge in the value of NMC was sudden and unexpected. Meanwhile, Provident’s struggles were also unexpected as the company halved in value in just one week, after a profit warning was issued, and the chief executive announced his departure.

Royal Mail is another struggling company faced with pension reform disputes and having had a generally difficult trading period.

The FTSE 100 is reshuffled quarterly, with the latest changes due to come into effect on September 18. Royal Mail floated three years ago and had narrowly avoided demotion in several reshuffles, but has been plagued with issues and is sitting at the bottom of the index in terms of market capitalisation this week.


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