In a move to tackle problems faced by some tracker funds, FTSE International is introducing capped versions of two of its top indices.
The launch, early last month, of the new FTSE CAP 100 and FTSE CAP All-Share comes as a result of a detailed market consultation brought on by Vodafone’s takeover of Mannesmann, the index provider says. In the new FTSE CAP 100 and FTSE CAP All-Share, which are completely separate from other indices, any individual stock is capped at 10%.
Since the Mannesmann takeover, and without capping, investment fund managers, governed by the European UCITS (Undertakings for Collective Investment in Transferable Securities) regulations, would be faced with an index they cannot track, said FTSE International.
Vodafone now represents 15% of the FTSE 100 and 12.2% of the FTSE All-Share indices. But, according to UCITS rules, investment fund managers cannot invest more than 10% of a portfolio in one stock.
The regulations also stop any fund from holding more than 40% of its assets in securities that are weighted at more than 5% of the index value.
Capped stocks in the new indices will be reviewed every month, and the indices rebalanced. This review will take place once a month, FTSE said. Historical valued will be calculated back to February 1, 2000.