BETWEEN THE CHAINS RUAN JOOSTE

n 1896 Charles Dow created the Dow Jones industrial average index by boiling down 12 stocks into one simple number. He opened the door for cheap access to stock markets for the layman. Over the years indexing has been further fuelled by a powerful movement towards passive investing whereby thousands of listed exchange traded products (ETPs) across the globe are supported by an underlying index, and by extension an index provider. The better-known global service providers are MSCI, the FTSE Group and S&P Dow Jones.

S&P is the world’s largest provider of financial market indices, including the S&P 500, the most followed stock market index. It is also the most active index provider in SA and Africa.

The company’s African index suite, which comprises 80 indices, is available with history dating back to 1988.

It obtained the information when it acquired the International Finance Corp’s emerging markets database back in 2000.

The S&P Pan Africa index provides investors with exposure to stock exchanges in SA, Egypt, Morocco, Tunisia, Botswana, Ghana, Côte d’Ivoire, Nigeria, Kenya, Mauritius, Namibia and Zambia. It also offers tradable indices such as the S&P Access Africa and Africa 40 indices. Satrix and Old Mutual have already developed ETPs around some of these indices with the Asset & Resource Management Company introducing the Nigeria Select ETF in that country.

The S&P Quality SA index was designed to measure high-quality stocks on the JSE and the index has already been licensed to Satrix for the development of a unit trust. Grindrod will also in the next couple of weeks release an ETF based on the S&P SA 50 index. Both service providers are awaiting approval from the Financial Services Board.

The Quality index comprises top stocks which are selected using return on equity, financial leverage and accruals ratio, which identifies firms with low noncash earnings relative to their cash flow.

The SA 50 index comprises the largest 50 companies by floatadjusted market cap, which excludes locked-in shares such as those held in share investment schemes. African Alliance Asset Management also made available its S&P GIVI Equity Prescient Fund on January 26, enabling investors to participate in products focused on the S&P GIVI SA composite index. It was designed to track large-, mid- and small-cap companies.

The launch of the product is African Alliance’s first foray in the local investment market and the first local product to utilise the GIVI. The GIVI methodology combines low volatility and intrinsic value weighting, rather than market capitalisation.

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