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30 April 2024
Benefits expected for managers and investors as JSE index harmonisation starts BY SIOBHAN CASSIDY MoneyMarketing Contributor
T
he index harmonisation process that took place at the Johannesburg Stock Exchange (JSE) in March should draw a line under complexity that – to quote Michael Dodd, Senior Fund Analyst at Morningstar Investment Management – has meant the simple question “How did the South African equity market do last year?” has not had a straightforward answer for several years. In addition to cutting through complexity, analysts say, the consolidation of the 'vanilla’ and ‘Swix’ indices into one set of benchmark indices will be good news for liquidity on the JSE. It’s hoped that it will also lead to cost savings for investors over time. A widely accepted index is a sign of a healthy market. Not only does it allow investors access to index-tracking products that allow broad market exposure, but active investment managers also use an index as a benchmark
against which performance can be measured. An index should be widely accepted, investable and representative of the opportunity set. In pursuit of these objectives, various competing and overlapping indices have been developed for the JSE over the years. The landscape has become muddled, even as the Capped Swix All-Share Index has become the de facto headline index for the JSE. The vanilla indexes include the FTSE/JSE All Share Index (ALSI), FTSE/JSE Top 40 Index, as well as various industry, sector, total return, and capped variants. Each of these indices has a corresponding Swix (shareholder weighted) variant, such as the FTSE/JSE Swix All Share Index and the FTSE/JSE Swix 40 Index. There are capped versions (maximum exposure to one share), too, making for a very confusing benchmarking system.
Harmonisation “is a really good thing”, says Kelin Pottier, Solutions Strategist at 10X Investments. “Before now, every investor had to choose their benchmark from this whole skittle-box of SA equity benchmarks. You could go All-Share, you could go Swix, you could go Capped Swix, Capped All-Share. You could go Top 40, Swix Top 40, Capped Swix Top 40.” He adds, “There was never a neutral representation of the local market. It also created enormous complexity in trying to assess and compare the performance of different asset managers who all use different benchmarks.”
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The FTSE/JSE All Africa Index Series was introduced as a replacement to the existing JSE Actuaries Indices of the time, heralding the start of the South African index partnership between FTSE Russell and the JSE. It introduced several modernisation elements to the indices, such as free float weighting, hierarchical sector classification and enhanced data.
FTSE/JSE launched the Capped All Share Index and the Shareholder Weighted (Swix) All Share Index. The two new approaches were cocreated with market participants to provide performance benchmarks that were better immunised from concentration risk.
FTSE/JSE launched the Capped Swix All Share Index triggered directly by requests from the South African fund manager and asset consultant community, who were concerned with the increasing concentration exposure to Naspers in the Swix All Share Index.
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MoneyMarket_Nov 2023.pdf 1 2023/12/04 15:48:24
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