By PAUL PANCKHURST
A billion-dollar investor in the New Zealand sharemarket has a few tips for the Stock Exchange on how to make its planned NZSE50 index more investor-friendly.
In a submission to the exchange, AMP Henderson Global Investors says the exchange will need to run a parallel "capped" version of
the index that limits the influence of market heavyweights like Telecom.
The AMP is backing the exchange's planned move to a "free float" approach, where companies are weighted according to the amount of their shares that are freely traded, excluding those that are locked-up in big blocks.
It also supports putting 50 companies in the Stock Exchange's lead index, instead of the existing 40.
It says this will help to make the index more representative.
The AMP's main concern is the problem of a small number of big companies dominating the indices.
The Stock Exchange's planned NZSE50 will not remedy that problem - with Telecom, for example, becoming even more dominant than in the existing NZSE40, which is calculated on companies' market capitalisations.
But the AMP sees a way around this - a parallel version of the NZSE50, with companies capped so that none account for more than 5 per cent of the index.
AMP equity analyst John Mellor said a capped index would be in line with markets such as Canada and Norway which faced similar issues.
The AMP says problems with the existing NZSE indices mean that it benchmarks less than half of its funds against them.
It argues against the proposed special treatment in the NZSE50 would limit the downweighting under the free-float system of some of the country's biggest companies, such as Carter Holt Harvey.
This, said Mellor, seemed inconsistent.
The Stock Exchange is looking at submissions before coming back to investors with a revised proposal.
