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JSE Top 40 after Prosus listing

Naspers and friends still rule the roost in the index, indicating that investors should look a bit wider than only tracking the Top 40.

Investors and asset managers should have expected that the separate listing of Prosus on the Euronext stock exchange in Amsterdam would not make a big difference in the large weighting of Naspers in the JSE Top 40 index.

And it didn’t, due to the fact that Naspers still holds more than 70% of Prosus.

In addition, more than 92% of Naspers shares are included in the so-called free float that is used to calculate the weighting of shares in the index. This gives Naspers a weighting of nearly 17% in the index, with Prosus adding another 3% and MultiChoice nearly 1%. Together, these Naspers companies still account for 20.7% of the Top 40.

In contrast only 2.5% of the value of British American Tobacco (BAT) is included in the index, as less than 12% of its total number of shares is registered on the local share register and thus seems to be available to local investors. Only the 12% of the value of the company is included in the free float for purposes of calculating the index.

The result is that Naspers – with a market capitalisation of R1 008 billion – has a weighting of 16.8% in the index, while BAT (worth R1 235 billion at current share prices) is afforded a weight of only 2.5%.

Read: How the Naspers unbundling affects your index-tracking fund

It gets even stranger. Anheuser-Busch InBev, by far the largest company on the JSE by market capitalisation (more than R2 315 billion), is not even included in Top 40, as the number of shares on the SA register available to local investors is very small compared with other companies.

The ten biggest companies by market capitalisation

Share Price Market cap (Rm) 
AB InBev 1367.49 2 315 491
Prosus 1067.53 1 734 365
British American Tobacco 502.70 1 234 840
Naspers 2268.20 1 008 595
BHP Group 312.74 660 529
Richemont 107.16 559 375
Anglo American 359.34 505 041
FirstRand 66.69 374 097
Standard Bank 179.47 290 538
AngloPlat 1076.81 290 396
Vodacom 123.64 226 986

Source: JSE price data

The same anomalies are found elsewhere in the JSE Top 40. For instance, Sasol has a weight of 2.6% in the index compared with Vodacom’s 1.3%, despite the fact that Vodacom is much bigger as measured by market capitalisation.

Standard Bank and Anglo Platinum are around the same size, but Standard Bank has a weighting of nearly 4% in the index compared with AngloPlat’s 1.1%. The reason is that Standard Bank has a free float of 79%, while the figure for AngloPlat is 22% as Anglo American owns most of it.

JSE Top 40 market capitalisation and index weightings

Share Price Market cap (Rm) Free float Weight in index
Naspers 2268.2 1 008 595 97.02% 16.8%
BHP Group 312.74 660 529 98.85% 11.2%
Richemont 107.16 559 375 97.62% 9.4%
Anglo American 359.34 505 041 90.13% 7.8%
Standard Bank 179.47 290 538 79.00% 3.9%
FirstRand 66.69 374 097 56.60% 3.6%
Prosus 1067.53 1 734 365 9.91% 3.0%
MTN Group 93.89 176 914 95.39% 2.9%
Sasol 274.62 171 547 89.21% 2.6%
British American Tobacco 502.7 1 234 840 11.68% 2.5%
Mondi plc 297.44 144 423 99.69% 2.5%
Sanlam 77.62 181 890 74.49% 2.3%
AngloGold Ashanti 301.01 124 669 100.00% 2.1%
Absa 157.28 133 334 85.12% 1.9%
BidCorp 336 112 696 98.80% 1.9%
Nedbank 237.12 117 861 80.00% 1.6%
Old Mutual 19.75 95 417 97.66% 1.6%
Remgro 170.28 90 115 97.12% 1.5%
Implats 101.17 80 833 91.50% 1.3%
Vodacom 123.64 226 986 32.44% 1.3%
Capitec 1342.97 155 284 45.96% 1.2%
Gold Fields 83.76 69 406 97.95% 1.2%
Bidvest 198.94 67 399 99.55% 1.2%
Growthpoint 22.77 67 649 97.34% 1.1%
AngloPlat 1076.81 290 396 22.35% 1.1%
Clicks 249.19 65 309 96.10% 1.1%
Shoprite 132.66 78 447 79.60% 1.1%
RMB Holdings 79.65 112 442 53.00% 1.0%
Investec plc 78.5 54 642 96.20% 0.9%
Woolworths 54.43 57 068 91.03% 0.9%
Sibanye Gold 23.69 63 072 81.13% 0.9%
MultiChoice 118.8 52 134 97.02% 0.9%
Nepi Rockcastle 129.28 75 737 59.96% 0.8%
Discovery 122.08 80 364 54.94% 0.8%
Redefine 7.82 45 089 97.59% 0.8%
Mr Price 156.98 40 335 97.23% 0.7%
The Foschini Group 163.46 38 700 96.90% 0.6%
Spar 187.65 36 142 99.91% 0.6%
Tiger Brands 207.6 39 406 87.12% 0.6%
Exxaro 116.4 41 753 69.86% 0.5%
Investec Ltd 79.17 25 248 94.30% 0.4%

Source: JSE data

Grouping the companies in the index by industry sector shows what exposure an investor would get in a tracker fund or investing in the Satrix 40. Mining and resource shares comprise just more than 32% of the index thanks to the strong performance of the shares during the last few years.

Large conglomerates – including Naspers, Bidvest and Remgro – are second, with a weight of 24%. Companies reliant on consumer spending are next at 22%. We included retailers, cellular groups and food producers in this category.

Top 40 shares by industry

Sector Weight
Mining & resources 31.2%
Conglomerates 24.3%
Retail & consumer 22.4%
Banks & financial 19.4%
Property 2.7%
  100%

Source: Based on JSE data

The performance of different sectors during the past few years and the mathematics behind the calculation of any index based on market capitalisation, show that a pure tracking portfolio might be fraught with problems. In effect, the index mirrors past performance in that companies that enjoyed strong or spectacular growth will now have a big weight in the index.

Investors would thus weigh their investments towards companies that have already performed, while opting for lower exposure to companies with lower value without taking their future prospects into consideration.

Being the biggest now is no guarantee for next year’s performance.

This will be akin to buying high and selling low.

A case in point is that a new investor in an index fund would now put 24% of their money into mining and resource stocks and only 2.7% into property if the fund manager follows the Top 40. They will put nothing into beer and only 0.9% into Woolworths, a share that might offer the potential of a strong recovery.

In short, investors could end up with a less than an optimum portfolio.

It also once again opens up the debate on the value of portfolio managers, their analysts and the idea of searching for the next big winner on the JSE before it starts to run and – so they hope – rises to the top of the index.

Lastly, the foreign exposure of top companies is interesting.

Given the decline in the value of the rand over the last ten or 20 years, most of the top companies are the huge international groups (huge in rand terms) and those that earn foreign currency.

International groups and resource companies with hard earnings make up more than 60% of the companies in the Top 40 index, based on the free float calculation. Another 9% can be seen as both domestic and international companies, such as MTN and Woolworths. The other 30% or so comprises banks and local retailers with exposure largely limited to the domestic market.

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Why don’t the AM go through the list and give us a number of how many of the 40 on the list they would put their OWN money in.

Everybody free to participate.

Although I can find better things to do with money offshore I can probably stomach a total of :

15.

MMMM I beat you by one …..16. The others i wouldn’t touch. Then again in this type of market I wouldnt touch smaller companies YET!

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