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Today the Johannesburg Stock Exchange (JSE) and global index provider FTSE Group (FTSE) announce the launch of the FTSE/JSE Equally Weighted Top 40 Index. The new index adds to the existing FTSE JSE Index Series, providing an alternative to indices constructed according to the market values of the companies (or market capitalisation weightings). It is also the first equally weighted index to be launched in South Africa within the FTSE/JSE Index Series.
Aimed at fund managers globally, the introduction of the FTSE/JSE Equally Weighted Top 40 Index will extend the FTSE/JSE Africa index range and provides a variation from existing indices, allowing greater risk diversification and benchmarking for performance, particularly in equity portfolios. The majority of FTSE/JSE indices are market-cap based, with a few indices based on company fundamentals. “For some time FTSE and JSE have realised the existence of market demand for an equally weighted top 40 index. Current market conditions require a tool that allows for all companies to be considered on an even playing field,” says Ana Forssman, Senior General Manager of Information Product Sales.
“The new index provides the South African market with an exciting new investment opportunity, as well as raising visibility for South Africa amongst the international investor community,” says Jonathan Cooper, Managing Director Middle East and Africa, FTSE Group. “By providing a range of innovative strategies, FTSE is dedicated to enhancing both the level of choice and opportunities for investor diversification. We shall continue to build upon our work with the JSE to ensure we meet market demand.”
As with the FTSE/JSE Top 40 Index, the FTSE/JSE Equally Weighted Top 40 Index consists of the largest 40 companies on the JSE but unlike the FTSE/JSE Top 40 Index and other market capitalisation indices, all constituent companies have the same weighting and therefore the importance of each company in the index does not depend on its market capitalisation.
"Equal weighted indices give investors better access to all stocks in a particular segment," says Forssman. "If there's strength across a segment, products tracking equal weighting indices tend to outperform, but investments tracking market-cap weighting indices can do better depending on the market's leadership.” Forssman adds that investors could find that products based on the FTSE/JSE Equally Weighted Index are a useful aid in reducing the risk associated with the sudden drop in share price in large cap companies. Both institutional and retail investors can look forward to products tracking this index launching soon.
The FTSE/JSE Equally Weighted Top 40 Index follows the construction of the existing FTSE/JSE Top 40 index with regard to quarterly index reviews, constituents’ eligibility and constituent price data. The constituents of this index will therefore always reflect the constituents of the FTSE/JSE Top 40 index.
