The Copenhagen Stock Exchange will calculate capped versions of the KAX all-share index as from February 2003, when the Exchange will switch to a new index platform.
In the new capped indices the maximum weight of the constituent shares is 10 per cent. Six companies in the existing KBX Index will have their weights reduced in the KBXcap. The reduction will affect the following shares: Danske Bank, Nordea, Novo Nordisk B, ISS, D/S Svendborg A, D/S Svendborg B and Vestas Wind Systems.
The new index types are made especially for institutional investors, who are subject to restrictions as regards risk exposure in individual companies.
Commenting on the new capped index, Deputy CIO, Helle Holm, ATP (the Danish Labour Market Supplementary Pension Scheme), said: "With a capped performance index which represents 85 per cent of the Danish market we have got yet another measure as benchmark."
Secretary General Peter Wendt of the Federation of Danish Investment Associations commented, "We have long wanted a capped version of the KAX Index. The diversification rules for the unit trusts imply that no share may carry a weight of more than 10 per cent in the portfolio. With a cap that follows this principle the benchmark for Danish shares of the Federation of Danish Investment Associations becomes much more well-founded".
Senior Vice President Peter Belling said: "The new capped indices will be introduced at the request of the institutional investors. Also, the introduction should be seen in the light of the Exchange's continued enhancement of information products for benchmarking. A product area, which has continued to grow throughout the years with a development characterised by customisation. Next year, the Exchange will launch a new IT system for calculation of indices and thus honour the request for customised indices."
The new capped indices will follow a common European directive applicable to unit trusts called the UCITS rules. Unit trusts and institutional investors are typically subject to these rules, which mean that in general an ordinary unit trust is prohibited from investing more than 5 per cent of its assets in the shares of a single company. However, this can be raised to 10 per cent if the sum of companies that weigh between 5 and 10 per cent do not exceed 40 per cent in the aggregate. The 8 largest companies of a portfolio comprising X share classes will, for instance, be capped as follows:
|
Company |
Before
Cap |
After
Cap |
Process |
|
A |
17 |
10 |
The
weight of the companies A-F, which all exceed 5 per cent, totals 58.4 per
cent before the capping, which means that the 40 per cent threshold is
exceeded. |
|
B |
14 |
10 |
The
companies A and B also exceed the 10 per cent threshold for a company’s
maximum weight, consequently, they are both reduced to 10 per cent. Since
the weight of the companies still exceeds 40 per cent (47.4 per cent),
even after the capping of the companies A and B, the companies E and F
will also have to be capped. |
|
C |
8 |
8* |
|
|
D |
7 |
7* |
|
|
E |
6.5 |
5 |
After the
capping, the weight of the companies between 5 and 10 per cent totals 35
per cent, and thus all the rules of the UCITS provision have been complied
with. |
|
F |
5.9 |
5 |
|
|
G |
3 |
3* |
A new
capping will not be made until the portfolio is reviewed, i.e. at the
beginning of June and December. |
* In reality the weights of these companies will be increased when the weights of other companies are reduced. If the weight of the companies subsequently exceeds 10 or 5 per cent, they too will be capped.
This rule is also known as the 5-10-40 rule
