Usually, each quarter sees a reshuffle of UK stocks in the main FTSE indexes. Shares that have done well get promoted to the FTSE 100, while poor performers drop down to the FTSE 250 (and vice versa). This isn’t subjective, but rather done based on the market cap of each stock. Here are two that I think could be up for promotion in the year-end change.
A strong investment trust
There are seven FTSE 100 stocks with a current market cap below £4bn. By contrast, Alliance Witan (LSE:ALW) has a market cap of £4.8bn. Therefore, I expect this company to stand a good chance of getting promoted next month.
The investment trust aims to provide investors with a return that beats global stock markets. Over the past year, it has risen by 18%. It has a team of 11 managers, each which are allowed to hold no more than 20 high-conviction stocks at any one time. These can be selected from anywhere around the world.
I like the fact that it has such a diversified approach, both with managers and sectors. For example, it has 25.2% of funds allocated to tech. Yet it has a balanced allocation to plenty of other areas that I’m positive on, including financial services and healthcare.
One risk is that it’s purely focused on stocks. If this asset class underperforms over the next year, I might be kicking myself for not choosing something related to bonds or commodities instead.
A diversified bank
The second stock is Investec (LSE:INVP), with a current market cap just under £4bn. I’m kicking myself that I didn’t buy earlier in the summer when I wrote about it. The price is up 26% over the past year, also boasting a 5.58% dividend yield.
Like most banks, Investec has benefitted from interest rates staying higher for longer in the UK. This has elevated the net interest income that it has made over the past year. However, it has also done well outside of this, with a recent trading update talking about “revenue momentum from our diversified client franchises.”
The fact that it has operations both in the UK and South Africa allows the business to have earnings from different geographies. This can mean a good year from one area can offset weakness in another. The expected half-year adjusted operating profit for the South African unit is forecasted to rise by 15% versus last year.
With expansion deeper into wealth management with the recent acquisition of Rathbones, things could accelerate in the next year. However, this tie-up could be seen as a risk. Sometimes two businesses don’t gel and this could cause big headaches for the management team.
I think both stocks could keep rallying and secure promotion to the FTSE 100. On that basis, I’m thinking about adding both to my portfolio over the next month in advance of this.
