Naspers stable exposure alters
UNBUNDLING: HUGE IMPLICATIONS FOR PORTFOLIOS
Investors looking for larger off-shore diversification have benefitted.
The listing of Prosus, the new company holding Naspers’ international online assets, marks a key step in the latter’s unbundling. Naspers holds the biggest weight in the FTSE/JSE All Share Index, so the unbundling can have significant implications for investors’ portfolio compositions.
This is especially relevant for index-tracker portfolios. For actively managed portfolios, the impact depends on the actual weightings determined by the portfolio manager, which could deviate from the index weight.
A portfolio’s benchmark determines an investment portfolio’s nature and composition, and its expected performance.
Different benchmarks behave differently, depending on composition. Selecting an inappropriate benchmark can therefore significantly impact a portfolio’s volatility and returns.
It is worth considering the impact of Naspers’ unbundling on indices used as benchmarks by investors. This is the preferred benchmark for foreign investors into SA. Its Naspers weight shrunk from 34% to 25%. As MSCI only considers companies with a primary SA listing, Prosus is excluded.
The unbundling has reduced Naspers’ concentration. The unbundling resulted in the Shareholder Weighted Index (Swix) experiencing a small reduction in overall weight of the Naspers stable. Instead of one company at 26.2%, there are now two: Naspers at around 19.2% and Prosus at around 3.3%.
The index weight of Prosus is smaller, as some shareholders don’t hold their shares on the JSE’s share registry, Strate. The combined weighting is nearly 4% lower than before, totalling 22.5%. This index was introduced in 2016 to reduce Naspers’ weight. Many SA pension funds and other investors subsequently changed their domestic equity benchmarks from the Swix to the Capped Swix.
This return to a higher weighting isn’t ideal, although it’s still below the full uncapped Swix weighting by Naspers and Prosus of 22.5%. The uncapped Swix now has a 9% higher allocation to the Naspers stable than the Capped Swix, down from 16%. The Capped Swix is SA retirement funds’ most commonly used benchmark. Thus retirement fund trustees must consider that Naspers’ unbundling and Prosus’ listing means increased exposure to the overall Naspers stable. Any significant changes in an index’s composition has a direct impact on the performance of (index-tracking) investment portfolios. Any changes will likely impact volatility and performance. For investors referencing the Capped Swix, the unbundling has resulted in a higher exposure of almost 4% to Chinese stocks via Prosus. Thus investors looking for increased offshore diversification benefit.
Hulett is an Actuarial Society of SA’s investments committee member