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  1. 1. Indices<br />What is an index?<br />The primary purpose of an index is to reflectmovementsin theunderlying market accurately<br />A price index expresses how much the prices concerned have changedduring the day, week, month, year etc<br />Indices are produced primarily for the use of analyzing investment strategies and as a measure of portfolio performance for professional investors such as pension funds, insurance companies and other institutional investors<br />
  2. 2. Indices<br />Price on the first day set as 100 = basis index<br />Prices over next 4 days expressed as relative indices to the basis price<br />
  3. 3. Indices<br />Single stock index<br />Price index value = Share Price / Divisor<br />
  4. 4. Indices<br />What was the % movement in the share price from the 1st of Jan to the 4th?<br />Composite indices<br />consist of share prices of more than 1 share<br />
  5. 5. Indices<br />Market-value (Capitalization) weighted index<br />Weights shares according to their total market capitalization<br /> Is the most important type<br />All major indices are Ex. S&P 500<br />Price-weighted index<br />Weights shares only according to share prices<br />Equally-weighted index<br />Weights each share in the index equally<br />
  6. 6. Indices<br />Market-value weighted index<br />Market capitalization<br />Share price x Total Shares Issued<br />Companies are weighted according to their market cap with respect to the total market<br />Example: <br />Company A has a total market cap of R1,000,000<br />The market as a whole has a market cap of R20,000,000. <br />Then company has a weight of (1,000,000/20,000,000) X100 = 5% in the index.<br />
  7. 7. Indices<br />Market-value weighted index<br />Formula for calculating<br />∑ (pi x si x fi)<br />Divisor<br /> Where <br />pi = Stock Price<br />si= Amount of shares issued<br />fi= Free Float Factor<br />
  8. 8. Indices<br />Market-value weighted index<br />Free float factor is the amount of shares which is tradable in the market. Free Float factors are published by the JSE<br />A Free Float factor of 0.8 means 80% of the companies shares is tradable in the market<br />The Divisor is created to allow a constant index value when companies additions, deletions take place<br />It also allows for stock splits not to influence an index value<br />
  9. 9. Indices<br />Market-value weighted index<br />Portfolio strategy<br />Investor holding a portfolio of all firms in the index in proportion to their market value (ETF)<br />Rate of return of the index equals the rate of returns that would be earned by an investor holding a portfolio of all firms in proportion to their market value.<br />Index does not reflect cash dividends paid.<br />Unaffected by stock splits<br />
  10. 10. Indices<br />Market-value weighted index<br />Example<br />Index consists of the following shares:<br />ABSA<br />issued 1m shares and a free float factor of 1<br />Sasol<br />issued 3m shares and a free float factor of 1<br />BOE<br />issued 5m shares and a free float factor of 0.8<br />
  11. 11. Indices<br />
  12. 12. Indices<br />In the above example the index had a percentage change of<br />((103.06 – 100 / 100)) x 100<br />3.06%<br />
  13. 13. Indices<br />Market-value weighted index<br />Example of a company deletion and addition<br />Now assume at the end of 2 Jan BOE is deleted and CellCwith 5m issued shares is added<br />
  14. 14. Indices<br />
  15. 15. Indices<br />Market-value weighted index<br />On 2 Jan the index values stays the same to calculate the new divisor.<br />New Divisor = Market Value / Index value<br />= 97.8m / 103.06<br /> = 0.95<br />Thus on 3 Jan <br />Index value = Total Market Value / Divisor<br />=103.45m / 0.9<br /> =108.89<br />
  16. 16. Indices<br />Price-weighted index (e.g. DJIA)<br />Add up the value of stocks (share prices) and divide by number of stocks in index<br />High priced stock dominate a price-weighted average <br />Portfolio strategy <br />hold 1 share of each stock in the index<br />DJIA measures the return (excluding dividends) on a portfolio that holds one share of each stock.<br />Value of such a portfolio<br />Sum of the prices<br />
  17. 17. Example<br />Indices<br />
  18. 18. Indices<br />Compare changes in the value of portfolio holding one share of each firm and the price-weighted Index<br />Percentage change in index<br /> Start <br />(25 + 100) / 2 = 62.5<br />End <br />(30 + 90) / 2 = 60<br />Change <br />(62.5 – 60) / 60 x 100 = -4%<br />
  19. 19. Indices<br />Divisor adjusted when:<br />Stock split occurs<br />Firm is replaced<br />Stock dividend &gt; 10% pays out<br /><ul><li>The DJIA is therefore unaffected by these events.
  20. 20. How representative is this index of the broad market?</li></li></ul><li>Indices<br />Equally-Weighted Indices<br />Placing equal weight on each return<br />Portfolio strategy<br />Placing equalRands / Dollars in each stock<br />Rebalancing required<br />
  21. 21. Indices<br />A company must measure its performance relative to an index representing the sector the company resides in<br />Example<br />ABSA will look at the Banking Index <br />Anglo will look at the Gold and Resources Index <br />Managers performance will also be stated regarding their performance relative to an index<br />Manager B outperformed the ALSI by 4%<br />
  22. 22. Indices<br />FTSE/JSE Africa Index Series: Market-value weighted:<br />ALSI <br />Top 99% of shares<br />Top40 <br />The 40 largest shares<br />MID-CAP <br />Next 60 largest shares, after 40 largest shares<br />SMALL-CAP <br />Excluding100 largest shares<br />MINI15 <br />15 largest mining shares<br />FINDI30 <br />30 largest financial & industrial shares<br />FINI15 <br />15 largest financial shares<br />INDI25 <br />25 largest industrial shares<br />RESI20 <br />20 largest resource shares<br />
  23. 23. Indices<br />International indices:<br />Dow Jones Industrial Average/ DJIA <br />30 largest blue chip stocks on NYSE <br />Price Weighted<br />Computed since 1896<br />Best-known measure of the performance of the stock market<br />Standard & Poor’s Composite 500/ S&P 500 <br />500 largest firms on NYSE <br />Market cap<br />NASDAQ Composite (<br />All electronically traded shares in USA<br />Market cap<br />NYSE Composite <br />All NYSE listed stocks<br />Market cap<br />Wilshire 5000 (<br />All NYSE & Amex stocks plus actively traded NASDAQ stocks<br /> Market cap<br />
  24. 24. Indices<br />Nikkei 225 <br />Share index of the 225 largest shares on the Tokyo Stock Exchange in Japan <br />Market cap<br />Hang Seng<br />All share index of the Hong Kong Stock Exchange <br />Republic of China <br />Market cap<br />FTSE (Financial Times of London) <br />Share index of 100 largest shares on the London Stock Exchange <br />United Kingdom<br />Market cap<br />Dax<br />All share index on the Frankfurt Stock Exchange in Germany <br />Market cap<br />Cac<br />All share index on the Paris Stock Exchange in France<br />Market cap<br />
  25. 25. Indices<br />Index funds <br />Investors today can purchase shares in unit trust funds that hold shares in proportion to their representation in the ALSI as well as other stock indices. <br />These index funds yield a return equal to that of the particular index and so provide a low cost passive investment strategy for equity investors.<br />
  26. 26. Indices<br />Bekendstelling van ETF’s/ beursverhandeldefondse op die JSE deurSatrix Managers Bpk (gereg by die RFD)<br />Agtergrond<br />Produkinligting/beskrywing<br />SATRIX 40<br />SATRIX Indi<br />SATRIX Fini<br />SATRIX Resi<br />SATRIX Swix 40<br />Voordele<br />Kostes<br />
  27. 27. Indices<br />Alternative Indices<br />Dividend indices <br />Represents dividend movements<br />Fundamental Index<br />Is based on accounting values<br />