In the words of 1978 song The Gambler, recorded so memorably by country crooner Kenny Rogers, “You’ve got to know when to hold ’em, know when to fold ’em.” There has of late been more folding than holding from FTSE 100 investors, leading to one of the biggest reshuffles of the index in recent memory.
The term “blue chip” has its origins on the poker table, where blue was the colour of the highest-value tokens. Rarely have the gambling idioms so beloved of investing commentary felt so appropriate as when the pandemic saw many companies land on zero revenues during lockdowns.
In the light of such chaos, the only surprise is that there isn’t more turnover. In the words of Nicholas Hyett, an equity analyst at investment group Hargreaves Lansdown: “The world has changed since the last FTSE review at the beginning of March.”
Yet only four companies are expected to drop down to the FTSE 250 at the upcoming quarterly review – a decision based on market values at the close of play on Tuesday. Still, the last time more companies than this dropped out was in 2009, during the previous major economic crisis, according to tracking by investing platform AJ Bell.
Contenders for promotion are telling: cyber-security company Avast, emergency plumbers Homeserve, and medical equipment firm Convatec
Rogers met his gambler “on a train bound for nowhere”. A Covid-era cover might include a plane parked on a disused runway or a cruise ship requisitioned as a floating hospital. It’s obvious why easyJet and Carnival, the world’s largest cruise operator, are dropping out of the FTSE 100. Not even the most wary shareholders’ calculations had had a zero in the revenue column for their second-quarter forecasts. Both companies have announced thousands of job cuts as they battle for survival.
The reshuffle will also show how the direct disruption from lockdowns has rippled out to companies beyond. Meggitt makes wheels and brakes for fighter jets – spending that is fairly stable throughout the economic cycle. But the freeze in the commercial aviation parts business is relegating it after its brief sojourn in the FTSE 100.
Utilities are meant to be the ultimate in blue-chip companies, with boringly dependable revenues and dividends. British Gas owner Centrica has done its best to buck that trend, with relegation likely to mark the end of departing chief executive Iain Conn’s reign. Conn blamed the UK government’s energy price cap for Centrica’s £1.1bn loss last year, with cancellation of its dividend adding to shareholders’ pain.
The contenders in line for promotion are also telling in our work-from-home, quarantine times: cybersecurity company Avast, emergency plumbers and electricians Homeserve, and medical equipment supplier Convatec.
B&Q owner Kingfisher could also come up trumps, depending on share-price moves. People stuck at home have often had nothing better to do than DIY, while its status as an “essential” retailer meant sales were not too badly hit.
Another probable addition is betting company GVC. Its Coral and Ladbrokes arms have suffered a temporary hit from the pause in sports events around the world. But Premier League football is due to return on 17 June, while regular gamblers have shown no signs of holding back during lockdown. GVC’s online gaming business has proved that normal people – as well as blue-chip investors – can easily lose fortunes from the comfort of their own homes.