In a letter to clients last week, the firm said it intends to reduce to 75% the limit of funds that must be invested in medium-sized companies and alter its definition of ‘medium-sized companies’ to those UK-listed companies that are “medium in size but are not members of the FTSE 250 index”.
According to Old Mutual the reason for the changes was that if a company was of medium size but listed on the Alternative Investment Market or had, as a result of good performance moved from the FTSE 250 to the FTSE 100, they would be considered non-benchmark holdings.
And, while the firm was quick to note that Watts does not initiate new investments in FTSE 100 companies, given “the dynamic nature of the mid-cap market” moves between the two indices happen regularly.
“If the fund is holding a number of non-benchmark, medium sized companies at the same time as a number of FTSE 250 stocks are promoted to the FTSE 100, then the existing threshold of at least 80% of invested assets being in FTSE 250 companies could be breached,” Old Mutual said.
Which means, it added, that the manager might have to sell positions in companies in which the he still has a high level of conviction – an outcome that may not benefit investors.
