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Typically, each quarter sees a reshuffle of UK stocks in the major FTSE indices. Stocks that performed well were raised to FTSE 100while the wrongdoers go down FTSE 250 (and vice versa). This is not an assumption, but rather is made based on the market cap of each stock. Here are two that I think might be suggested for year-end changes.
A solid investment trust
There are seven FTSE 100 stocks with a current market capitalization of less than £4bn. In contrast, Alliance Witan (LSE:ALW) has a market capitalization of £4.8bn. Therefore, I expect this company to have a good chance of promotion next month.
The investment trust aims to provide investors with returns that exceed global stock markets. Last year, it increased by 18%. It has a group of 11 managers, each of whom is allowed to hold more than 20 outstanding shares at any one time. These can be chosen from anywhere in the world.
I like the fact that it has such a diverse approach, both with managers and sectors. For example, it has 25.2% of the capital allocated to technology. However, it has a limited share in many other areas that I have confidence in, including financial services and health care.
Another risk is that it is concentrated in stocks. If this asset class underperforms over the next year, I might be kicking myself for not picking something related to bonds or stocks instead.
A separate bank
The second stock is Investec (LSE:INVP), which has a current market cap of just under £4bn. I’m kidding myself that I didn’t buy at the beginning of summer when I wrote about it. This stock is up 26% over the past year, and boasts an annual yield of 5.58%.
Like many banks, Investec has benefited from prolonged high interest rates in the UK. This increased the net interest income that it had made in the previous year. However, it has also done well without this, with the latest trading update we are talking about “Revenue momentum from our diverse customers.”
The fact that it has operations in the UK and South Africa allows the business to have profits from different locations. This can mean that a good year in one area can offset a weakness in another. The South African division’s half-year adjusted operating profit is expected to increase by 15% compared to last year.
With the deep expansion into wealth management with the recent acquisition of Rathbones, things could accelerate in the next year. However, this binding can be seen as dangerous. Sometimes two businesses don’t get along and this can cause a big headache for the management team.
I think both stocks can keep rallying and secure promotion to the FTSE 100. On that basis, I am thinking of adding both to my portfolio in the next month before this.
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