Fund managers are set to shun FTSE International's proposed capped indices due to introduced because of the Vodafone/Mannesmann market-cap busting deal.
European laws prevent investment funds from holding more than 10 per cent of any stock, but the merged company will make up around 14 per cent of the FTSE 100 index.
Virgin says the capped concept, which is designed to get around the problem, is flawed and they will be lobbying to get the limits raised.
Both Virgin and HSBC Asset Management plan to use a Deutsche Bank bond which will mimic the performance of the Vodafone shares.
Legal & General has decided to spread any amount above the 10 per cent across its all-share tracker fund's portfolio in the short term.
But HSBC and L&G are not ruling out using the capped indices while other fund managers including Norwich Union remain undecided.
FTSE International intends to introduce capped versions of the FTSE 100 and FTSE All-Share in March.
It says a limit of 10 per cent for any single stock should be imposed and is set to launch new additional capped and individually branded indices though the existing FTSE 100 and FTSE All-Share indices will continue to be calculated.
Virgin Direct marketing manager Gordon Maw says: “We want to carry on tracking and the capped index is flawed. It reduces the exposure to a stock and our job is not to make the calls.”
HSBC global head of product development Mark Dickson says: “The funds were launched specifically to track the index. We will be obliged to go back to unit holders if we want to change.”
