1. Indices What is an index? The primary purpose of an index is to reflectmovementsin theunderlying market accurately A price index expresses how much the prices concerned have changedduring the day, week, month, year etc Indices are produced primarily for the use of analyzing investment strategies and as a measure of portfolio performance for professional investors such as pension funds, insurance companies and other institutional investors

2. Indices Price on the first day set as 100 = basis index Prices over next 4 days expressed as relative indices to the basis price

3. Indices Single stock index Price index value = Share Price / Divisor

4. Indices What was the % movement in the share price from the 1st of Jan to the 4th? Composite indices consist of share prices of more than 1 share

5. Indices Market-value (Capitalization) weighted index Weights shares according to their total market capitalization Is the most important type All major indices are Ex. S&P 500 Price-weighted index Weights shares only according to share prices Equally-weighted index Weights each share in the index equally

6. Indices Market-value weighted index Market capitalization Share price x Total Shares Issued Companies are weighted according to their market cap with respect to the total market Example: Company A has a total market cap of R1,000,000 The market as a whole has a market cap of R20,000,000. Then company has a weight of (1,000,000/20,000,000) X100 = 5% in the index.

7. Indices Market-value weighted index Formula for calculating ∑ (pi x si x fi) Divisor Where pi = Stock Price si= Amount of shares issued fi= Free Float Factor

8. Indices Market-value weighted index Free float factor is the amount of shares which is tradable in the market. Free Float factors are published by the JSE A Free Float factor of 0.8 means 80% of the companies shares is tradable in the market The Divisor is created to allow a constant index value when companies additions, deletions take place It also allows for stock splits not to influence an index value

9. Indices Market-value weighted index Portfolio strategy Investor holding a portfolio of all firms in the index in proportion to their market value (ETF) Rate of return of the index equals the rate of returns that would be earned by an investor holding a portfolio of all firms in proportion to their market value. Index does not reflect cash dividends paid. Unaffected by stock splits

10. Indices Market-value weighted index Example Index consists of the following shares: ABSA issued 1m shares and a free float factor of 1 Sasol issued 3m shares and a free float factor of 1 BOE issued 5m shares and a free float factor of 0.8

11. Indices

12. Indices In the above example the index had a percentage change of ((103.06 – 100 / 100)) x 100 3.06%

13. Indices Market-value weighted index Example of a company deletion and addition Now assume at the end of 2 Jan BOE is deleted and CellCwith 5m issued shares is added

14. Indices

15. Indices Market-value weighted index On 2 Jan the index values stays the same to calculate the new divisor. New Divisor = Market Value / Index value = 97.8m / 103.06 = 0.95 Thus on 3 Jan Index value = Total Market Value / Divisor =103.45m / 0.9 =108.89

16. Indices Price-weighted index (e.g. DJIA) Add up the value of stocks (share prices) and divide by number of stocks in index High priced stock dominate a price-weighted average Portfolio strategy hold 1 share of each stock in the index DJIA measures the return (excluding dividends) on a portfolio that holds one share of each stock. Value of such a portfolio Sum of the prices

17. Example Indices

18. Indices Compare changes in the value of portfolio holding one share of each firm and the price-weighted Index Percentage change in index Start (25 + 100) / 2 = 62.5 End (30 + 90) / 2 = 60 Change (62.5 – 60) / 60 x 100 = -4%

21. Indices A company must measure its performance relative to an index representing the sector the company resides in Example ABSA will look at the Banking Index Anglo will look at the Gold and Resources Index Managers performance will also be stated regarding their performance relative to an index Manager B outperformed the ALSI by 4%

22. Indices FTSE/JSE Africa Index Series: Market-value weighted: ALSI Top 99% of shares Top40 The 40 largest shares MID-CAP Next 60 largest shares, after 40 largest shares SMALL-CAP Excluding100 largest shares MINI15 15 largest mining shares FINDI30 30 largest financial & industrial shares FINI15 15 largest financial shares INDI25 25 largest industrial shares RESI20 20 largest resource shares

23. Indices International indices: Dow Jones Industrial Average/ DJIA 30 largest blue chip stocks on NYSE Price Weighted Computed since 1896 Best-known measure of the performance of the stock market Standard & Poor’s Composite 500/ S&P 500 500 largest firms on NYSE Market cap NASDAQ Composite ( All electronically traded shares in USA Market cap NYSE Composite All NYSE listed stocks Market cap Wilshire 5000 ( All NYSE & Amex stocks plus actively traded NASDAQ stocks Market cap

24. Indices Nikkei 225 Share index of the 225 largest shares on the Tokyo Stock Exchange in Japan Market cap Hang Seng All share index of the Hong Kong Stock Exchange Republic of China Market cap FTSE (Financial Times of London) Share index of 100 largest shares on the London Stock Exchange United Kingdom Market cap Dax All share index on the Frankfurt Stock Exchange in Germany Market cap Cac All share index on the Paris Stock Exchange in France Market cap

25. Indices Index funds Investors today can purchase shares in unit trust funds that hold shares in proportion to their representation in the ALSI as well as other stock indices. These index funds yield a return equal to that of the particular index and so provide a low cost passive investment strategy for equity investors.

26. Indices Bekendstelling van ETF’s/ beursverhandeldefondse op die JSE deurSatrix Managers Bpk (gereg by die RFD) Agtergrond Produkinligting/beskrywing SATRIX 40 SATRIX Indi SATRIX Fini SATRIX Resi SATRIX Swix 40 Voordele Kostes

27. Indices Alternative Indices Dividend indices Represents dividend movements Fundamental Index Is based on accounting values