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Technology Stocks : Vodafone-Airtouch (NYSE: VOD) -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (2519)	2/10/2000 9:03:00 PM
From: MrGreenJeans	Read Replies (1) \| Respond to of 3175

Prepare for the LSE?s busiest day ever February 10, 2000 By Elliott Gotkine and Tom Winnifrith, UK-iNvest.com Tomorrow is expected to be the London Stock Exchange's busiest trading day ever as institutional investors pile into Vodafone AirTouch (VOD) in order to secure a full weighting for their portfolios ahead of Monday. One senior trader thinks 15bn Vodafone shares could change hands, two-thirds of that in the last half-hour of play. A good day on the LSE sees 1bn shares traded -- in all companies. Why such mayhem? Blame the index tracker funds, funds whose makeup is dictated by the weightings of the FTSE 100?s (or FTSE All Share?s) constituents. Because Vodafone is to make up 12% to 14% (or more) of the FTSE 100 index once its merger with Mannesmann is complete, tracker funds need to account for the enlarged company by buying into it. But it?s not only index trackers. Many other funds do not want to deviate too much from the FTSE, so they also try to replicate it fairly closely. They are sometimes called closet trackers. The long and the short of it The FTSE?s new weighting (with the enlarged Vodafone-Mannesmann) will be decided according to the average price of Vodafone in the final half hour of trading. (To be specific, the Volume Weighted Average Price (VWAP) will be used.) Normally, with changes like this, FT International takes the VWAP from the final 10 minutes, but it has changed the rules because Vodafone is so large. Because it is dangerous to take too large a position ahead of the determination of the VWAP (in case things go wrong and shares have to be sold again, generating massive dealing costs) most of the weighting business will take place in the final half hour of trading. The trader who expects massive volume thinks the shares could go up to 400p from today?s close of 342.5p. Why will the shares go up? Because UK institutions, the largest part of the market, will all be buyers. The sellers will be individuals, trading banks, hedge funds and foreigners. Because there are fewer of them, the price pressure will be upwards. But there will be some stock available for the institutions. Large brokers such as Merrill Lynch and Warburg Dillon Read have been buying the stock in large quantities so that they will be able to fulfil their institutional clients' orders. This means that the brokers are holding on to large amounts of stock -- volumes hit 1.12bn today. Of course, index funds cannot buy Vodafone until tomorrow afternoon (even if it would be cheaper to buy today) because technically that would leave them ?overweight? and thus not indexed in Vodafone. So is it a nil brainer? Should you ?beg borrow or steal? to buy Vodafone at 8.30 AM tomorrow looking to sell at 4.15 PM? The odds are that this is a sensible trading strategy. But remember, brokers are already long of stock and should there be an upset elsewhere, such as a correction on Wall Street, they will have to offload those positions at a loss. And if that happens, there is clear downside risk. On balance, day trading Vodafone tomorrow is a good strategy for those with nerves of steel and a sympathetic bank balance. Elliott Gotkine is a staff writer at UK-iNvest.com and Tom Winnifrith is the stock market editor.