Changing of the guard
Biotech stocks on the London Stock Exchange can be expected to be much more liquid following last week's changes to the benchmark FTSE 100 and FTSE 250 indices. Celltech (LSE:CCH) was one of 10 New Economy companies to oust 10 established blue chip names from the FTSE 100, which is composed of 100 of the most valuable companies listed on the LSE. Entry into the blue-chip index guarantees increased liquidity for a stock from the raft of funds tracking the FTSE 100.
With the latest entries, FTSE 100 tracker funds will be forced to hold almost 40 percent of their portfolios in technology and telecoms. "There are a number of tracker funds whose role is to replicate the index and so will have to make a weighted investment in the new companies. More significantly, there are many institutions and funds that are only allowed to invest in companies in the FTSE 100 or the second tier FTSE 250 index," noted Andrew Clark, portfolio manager at Finsbury Life Sciences.
CCH, which closed at 1614p and a market cap of £4.3 billion ($6.9 billion) at last Tuesday's deadline, won automatic promotion after placing 72nd in the FTSE list. For automatic entry into the FTSE 100, a company has to rank in the top 90 companies by market capitalization. For automatic relegation to the second tier, a FTSE 100 player has to drop to 111th