Johannesburg - JSE-listed heavyweights Sappi and Mondi have been dropped from the JSE/FTSE Top 40 index, with financial services firm Discovery Holdings and healthcare giant Aspen Pharmacare Holding taking their places. So what does this mean for the companies and their investors?
The Satrix 40 fund, one of South Africa's most well-known investment products, only invests in the Top 40 index. In an online share trading overview, Standard Bank points out that the Top 40 listed companies' index is one of the most popular with South African investors.
The index is a way for either retail (man in the street) or institutional investors (asset managers) to participate in the 40 biggest shares on the JSE by market capitalisation, without actively making stock-picking decisions.
Market capitalisation simply means taking the share price of a company and multiplying it by the number of shares in issue.
"Inclusion in an index is bound to attract more investments into that company," said Jannie Immelman, senior general manager of information services at the JSE, in an interview. Ultimately, a company's exposure to investors is a primary concern, he said.
Indexes are typically reviewed every quarter, and the Top 40 index is up for revision on Friday March 20.
Mondi said it had no control over its position in the Top 40 index, and that it was perfectly normal for a blue-chip company to fall in and out of it. Sappi declined to comment.
Tracker fund talks
Said Hugo Nelson, CEO of Coronation Fund Managers: "It's really the impact of tracker funds; these funds don't take active views and just buy the constituents of the index."
Tracker funds do exactly that: they track the performance of an index without relying on the decisions of active fund managers. In essence, tracker funds take out the human element of industry expertise - for instance, if fund managers expect a stock to underperform, their insight could prevent any potential losses.
The advantage of index-tracking funds is that they present a cheaper alternative to the continuous buying and selling transaction costs of active fund management.
When companies like Mondi and Sappi enter or leave an index, these tracker funds have to either buy or sell the leaver or entrant. "They would have to sell [Mondi and Sappi] because they are now a different part of the index," said Nelson.
"The management of companies sometimes panic about who their shareholders are and the fact that there are going to be lots of sellers of their shares," he said.
If tracker funds left the market by selling shares in Sappi and Mondi, then in theory the share price should fall. But if the fund represents a only small component of the overall share holding, the impact would be negligible.
Sappi and Mondi are currently at numbers 59 and 46 respectively, according to the JSE. Both companies were set to be included into the FTSE/JSE mid-cap range after the close of business on Friday, March 20.
According to Fin24.com and ranked by market capitalisation, Aspen Pharmacare, Discovery, Sappi and Mondi were valued at R17.29bn, R13.37bn, R9.13bn and R4.18bn respectively.
In similar vein, the JSE's top five performers on the Top 40 index were: BHP Billiton (R410.63bn), Anglo American (R210.83bn), SABMiller (R212.16bn), MTN (R170.92bn) and Sasol (R159.19bn).
And the bottom five performers were: Pretoria Portland Cement Company (R16.11bn), Steinhoff (R12.39bn), Investec (R8.57bn), Sappi (R9.13bn) and Mondi (R4.18bn).
By midday on Friday, both Sappi and Mondi were trading up 8.82% to 1 850c/share, and 4.39% to 2 975c respectively, against a Top 40 index that was up 2.45%.
- Fin24.com