Interactive Investor

Housebuilders to figure highly in FTSE rebalancing

2nd June 2015 12:38

Michael Trudeau from interactive investor

Housebuilding companies and estate agents could benefit from more optimistic valuations when the rebalanced FTSE indices are unveiled on Wednesday (3 June).

According to David Jones, manager of the Aberdeen UK Tracker Trust, confidence in the housing market has rebounded following the surprise Conservative win in the general election.

Jones says shares in housebuilders had been relatively weak prior to the election owing to fears of increased regulation under a Labour government. This has reversed since last month, with Berkeley for example up to 3,159p compared to its April lows of approximately 2,500p, leaving it on the brink of entering the FTSE 100.

Market preferences

On the smaller-cap end of the scale, Foxtons' shares suffered in the run-up to the election but have jumped 40% in the weeks since.

Jones believes central London developer Derwent London could also be tipped to enter the elite 100 index. This partly reflects the fact that 70% of its portfolio is within 800 metres of stations on the major new Crossrail line which will bisect London from Essex to Reading.

"The index changes are likely to reflect the market's recent preference for large, well-capitalised, dividend-generative stocks over more economically sensitive companies such as the engineers or mining companies," says Jones.

Last quarter Tullow Oil fell from the FTSE 100 to the FTSE 250, and looks like it could soon be joined by Aggreko and specialist engineering group Meggitt.

Jones adds: "Among the FTSE 250 constituents, RPS Group, De La Rue, BlackRock World Mining Trust and Infinis Energy also look vulnerable to demotion to the FTSE Small Cap index."

Another company tipped to enter the FTSE 100 is Provident Financial, a firm that lends to people and small businesses not considered viable borrowers by the large banks.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.