Several changes are expected before Christmas to the
companies included in the NZX-50 index which is traditionally
tracked by many index funds.
Yesterday, Kathmandu re- placed Methven Ltd in the NZX-50.
With Allied Farmers expected to take over Hanover Finance and
United Finance and DNZ Property Fund expected to list before
Christmas, both will move into the NZX-50, probably at the
expense of Skellerup and Pan Pacific Petroleum.
If another company moves into the NZX-50, Farming Systems
Uruguay will be the next casualty, although Craigs Investment
Partners broker Chris Timms said the NZX-50 was "something of
a movable feast".
Pyne Gould Corporation was likely to move into the top 50 at
the next review.
As companies increased or decreased their market
capitalisation, or value, they moved in and out of the index.
But they also had to have minimum turnover as a percentage of
their capitalisation.
For index-tracking funds, they would move their holdings from
one company to another as the companies moved in and out of
the index, he said.
Moving out of the NZX-50 could sometimes mean less research
being done on a company as funds did not want to pay for
research on a company outside of the top index.
It could also mean the share price going down, even if the
company was performing well.
However, the changes to the NZX-50 were not immediate with
there being a lead-in period, Mr Timms said.
There were five funds which had a hard-and-fast rule of
tracking the 50 and they had already done their buying and
selling on Kathmandu and Methven.
It was unlikely the announcement yesterday would cause any
further buying and selling by those funds.
There were other funds who "loosely" followed the top 50 but
they had discretion about whether they liked the stock or
not, he said.
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