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New Star IT is relegated for lack of liquidity

The New Star investment trust has been relegated from the FTSE all-share and small cap indices of UK stocks after failing liquidity tests.

In its Annual Index Review, published last week, FTSE promoted nine investment trusts to the all-share. The only trust it removed was New Star.

The changes take the number of investment companies in the index to 159 out of 618 constituents, or 26 per cent of the total.

New Star did not pass FTSE’s review of its liquidity or the frequency with which its shares are traded.

Simon Elliott, the head of investment company research at Winterflood, says that while most investment trusts have an investability weighting of 100 per cent, New Star came in with 40 per cent.

The trust was found to have failed the liquidity test over more than four non-consecutive months between May 2010 and April 2011.

John Duffield, the founder of New Star Asset Management, which ­suffered during the financial crisis and was bought by Henderson Group, owns about 60 per cent of the shares. This will have limited potential trading in the shares.

The nine trusts that are to be promoted to the all-share and small cap indices are BlackRock frontiers, Capital Gearing trust, Dunedin smaller companies, EP global opportunities, Henderson diversified income, JP Morgan European income, Middlefield Canadian income, Neuberger Berman global floating rate income and RCM technology.

Schroder’s Asia Pacific investment trust has been relegated to the FTSE small cap index from the FTSE 250.

The proposed changes will take effect this week.

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