Investment trusts in FTSE indexes

aroominyork

Do people think it an anomaly that investment trusts such as SMT and Monks figure in the FTSE100/250 etc.? All kudos to them for their wily stock-picking, but they are just a collection of global shares and their presence in the FTSE does not reflect the businesses which make up the nuts and bolts of the British economy, which surely is what the indexes should be. Also, if you buy a FTSE index fund does it include the ITs and hence mean you double-buy companies which the ITs hold?

A_T

But they are part of "the businesses which make up the nuts and bolts of the British economy". That's why they're in the index.

A_T

Legal & General UK MID Cap Index Fund tracks the FTSE 250 ex. Investment Trusts Index. Not sure if there are any other ex. Investment Trusts Index trackers.

aroominyork

A_T wrote: »

But they are part of "the businesses which make up the nuts and bolts of the British economy". That's why they're in the index.

They manufacture nothing. An individual IT provides no meaningful service. They employ a handful of people. They are an irrelevance to the fundamentals of the British economy - let alone that they mostly hold shares in businesses from other economies. They are only in the FTSE because they happen to be closed ended rather than open ended; if every OEIC which held over £4bn of shares was in the index there would be little space for genuine manufacturing and service companies.

dividendhero

A_T wrote: »

But they are part of "the businesses which make up the nuts and bolts of the British economy". That's why they're in the index.

FTSE100 is companies listed in Britain, there are companies in the index which don't do any business in the country - eg the Silver miner Fresnillo is a FTSE100 company that doesn't have any operations here.

Will be interesting if Aramco from Saudi Arabia gets a UK listing. It'll be biggest company in FTSE 100 and have no operations here

george4064

There are indices that exclude Investment Trusts and Investment companies.

Example here: https://www.premierfunds.co.uk/media/5124/acorn-income-fund-monthly-factsheet.pdf

'Numis Smaller Companies (ex. IC) Index'

aroominyork

dividendhero wrote: »

FTSE100 is companies listed in Britain, there are companies in the index which don't do any business in the country - eg the Silver miner Fresnillo is a FTSE100 company that doesn't have any operations here.

Fair point.

Tom99

[FONT=Verdana, sans-serif]You are right, they do distort the index a bit as you are doubling up on any companies the IT own which are already in that index or adding companies which are outside that index into the index.

[/FONT] [FONT=Verdana, sans-serif]So if BP has a market cap of £x and your FTSE100 IT owns shares in BP worth £y then the FTSE100 index is weighted as if BP was worth £x + £y and not just £x.

And any FTSE100 tracker fund will invest in BP and the IT so will have the correct index weighting in BP of £x + £y not just the 6% or whatever the BP is supposed to represent in the index.

[/FONT] [FONT=Verdana, sans-serif]I expect the effect is very small though.[/FONT]

grey_gym_sock

it won't be a significant effect for the FTSE 100 index. i think there are only 2 ITs in the FTSE 100 (3i and scottish mortgage), and they are relatively small (as FTSE 100 shares go), so they are only going to come to a fraction of 1% of the value of the index between them.

it's more significant for the FTSE 250, which includes something like 40 ITs. though again, they are not the biggest companies in the FTSE 250. it looks like ITs might account for c. 13% of the FTSE 250 (by comparing the sizes of the top 10 holdings for that L&G UK mid cap tracker, which excludes ITs, to the HSBC FTSE 250 tracker, which includes them; incidentally, none of the shares in those top 10s are ITs).

a few IT are not mostly invested in quoted shares at all, so you aren't doubling up with them. one example is 3i.

AnotherJoe

I can see your point OP it's very incestuous / self referential. Such an IT might also hold shares in itself as well, ending with the index including a company that holds shares within the index, plus shares in itself which are thus shares within the index, and maybe shares in other ITs which themselves etc..

redux

I can't see the problem. There are versions with and without investment trusts. It sounds more like a complaint about index trackers and maybe ETFs. If you don't want to buy a tracker that includes investment trusts, then look at another.