JSE suggests changing the rules for capped indices
The JSE has engaged with clients and there appears to be widespread support to change the index rules
Stock market indices are one of those background elements of the investment ecosystem that people rarely interrogate closely. The FTSE/JSE all share index, or one of its variants, is a useful tool to report on market performance for the day. When we dig a bit deeper, we find additional-use cases that are fundamental to the investment management process, and discover that perhaps index construction and index weighting are more important than they initially appear to be.
A fund benchmark is an important example. Fund managers will select a benchmark for their fund or mandate, and equity funds will typically use an equity index for this purpose. A performance benchmark is often used to determine management fees; the fund manager whose investment delivers better returns than the index is entitled to charge an additional performance fee. There are two ways to “beat the benchmark” — be overweight on a stock that delivers above-benchmark returns, or to be underweight on a stock t...
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