tjh290633 wrote:moorfield wrote:Itsallaguess wrote:, as I personally consider the 'High Yield' description to be portfolio based, and not necessarily a barrier to entry for each and every constituent,
I quite agree IAAG.
In point of fact, I believe that the boundary between the FT350HY Index and the FTSE350LY Index is the average yield on the FTSE350 index when the indices are calculated. So there is no differentiation in that index between high and higher, just that they are above the boundary.
I'm afraid it's not that simple... The average yield is used, and I think that when a new company enters the FTSE350, which of the FTSE350HY or FTSE350LY it also enters is just a matter of whether their yield is above or below average. But once in one of them, in the first instance the review process only automatically promotes FTSE350LY companies to the FTSE350HY if their yield is more than 1.15 times the average, and only automatically demotes FTSE350HY companies to the FTSE350LY automatically if their yield is below 0.85 times the average. Then it does some adjustments to companies between 0.85 and 1.15 times the average with the aim of giving the FTSE350LY and FTSE350HY indices market capitalisations that are as equal as possible. When an adjustment is done, it is always to demote the lowest-yield FTSE350HY company or promote the highest-yield FTSE350LY company, but that's only done for as long as it continues to bring the two closer to having equal market capitalisations. So the review process can leave companies with above-average yields in the FTSE350LY index, as long as their yields haven't risen too far above average, and similarly it can leave companies with below-average yields in the FTSE350HY index, as long as their yields haven't fallen too far below average.
Full details are in FTSE's UK Ground Rules, on pages 30-32. One other detail that I think is worth calling out explicitly is that this review process is only done once per year, I believe at the June review. At the other three quarterly reviews of the FTSE in March, September and December, companies that leave the FTSE350 also leave whichever of the FTSE350HY and FTSE350LY they're in, and companies that join the FTSE350 are added to one of them according to whether their yields are above or below average, but nothing further is done.