FTSE hits 6000, almost 6100 partying like its 1999.

So, the FTSE finally managed to get over the 6000 mark as the US Fiscal Cliff part agreement euphoria took hold and now has a little daylight as it is just below 6100. It did get to 6000 back in 1998, spending much of 1999 and 2000 above this level, looking like it might even get to 7000 at one stage, but not to be. 7000 still looks a long way off. For most of the last decade the index has been up and down, spending most of the last 4 years regaining the lost ground brought on by the financial crisis.

What has changed quite a lot over that time is the make up of the index itself and this is something that isn't talked about as much, often giving the false impression that the index is somewhat fixed in terms of its constituents. The index itself can potentially change every quarter depending on the cap value of the lowest FTSE100 compared to the top cap values of those in the FTSE250. One of those recently promoted was Melrose, while companies like Man Group have dropped out in the last year.

What did the index look like in 1999?

The FTSE game of relegation and promotion

Today the FTSE100, 250 and smaller companies index have a slightly different look about them because of the quarterly promotion/relegation battle that goes on which can see each index change over time.  Without going into the calculation that determines who gets promoted and relegated, these changes should be noted and if necessary acted upon by investors and traders.

For long term buy and hold investors it can be a big negative if the company that you hold gets relegated. Usually, the relegation is known well in advance, so it is possible to act before the change actually happens.  Whether you act will depend on how you see the prospects for the company going forward.  A few quarters back hedge fund manager Man Group was one of those relegated from the FTSE100 to the 250 index and since then its share price has continued to fall.  It had been in freefall for some time prior to its relegation, so the writing had been on the wall that the company was facing difficulties.

On the other hand, if you hold a company that is promoted often the share price will rise as the bigger buyers come in to add to their positions.  This probably is more the case with smaller companies promoted to the FTSE250, but also companies promoted to the FTSE100 might see some price rise as FTSE 100 funds will look to buy.

So, what changed today?