Wednesday, June 21, 2006

Not Even One Pro Understands The New FTSE Bursa Indices

The Star Biz page is often the much sought after for the top business news of the day in Malaysia. The front page today reads "Funds Cool To FTSE Bursa Index". Most fund managers are not expecting significant adjustments to their investment portfolios when the first phase of the FTSE Bursa Malaysia Index series kicks in next week. Hwang-DBS Investment Management Bhd chief executive officer and executive director Teng Chee Wai said: “We do not anticipate significant adjustments in the portfolio management, especially for the local fund industry, as most domestic fund managers are active stock pickers. Unlike their foreign counterparts, most local managers are not benchmark ‘huggers’.” He said most of the company's funds were equity-based and benchmarked against the KL Composite Index (KLCI). As such, the new indices would not have much effect on the company's overall portfolio management. Sharing similar views, CIMB-Principal Asset Management Bhd chief executive Noripah Kamso said the new indices would only affect funds that were benchmarked on the indices that would no longer be used. “As most of our equity funds are benchmarked against the KLCI, we will not be reassessing our funds portfolio at this point in time,'' she said.

The introduction of the free float-based FTSE Bursa Malaysia Index series, in collaboration with international index provider FTSE Group, is part of Bursa's efforts to boost the exchange's appeal among global institutional investors. The first phase, to be launched on Monday, will consist of six new indices: FTSE Bursa Malaysia (FBM) Emas, FBM 100, FBM 30, FBM 70, FBM Small Cap and FBM Fledging. The remaining indices would be added to the exchange in stages by year-end or probably by the first quarter of 2007.

Apex Investment Services Bhd chief executive officer Tan Keah Huat said the company's investment team was in the process of analysing companies that it would invest in to ensure better returns for its investors. According to Tan, since most of Apex Investment's funds are equity-based, there would not be much adjustment to the current portfolio. On the impact of the new indices on the fund management industry, Noripah said: “The indices will have both positive and negative impact. On the one hand, the indices will more accurately and transparently track the trading liquidity of the index constituents (stocks included in the index). “On the other hand, there are higher costs involved for future funds that may use these indices as benchmarks.” Teng said the key consideration for adopting the new indices would be the cost. The initial guidance by Bursa and FTSE on the cost of using the indices seemed to be on the high side, he added. The indices would also benefit the fund management industry as they would provide a better reflection of the global standards since they were structured to take into consideration the liquidity and free-float of each stock, he said.

My Take - OMG, I cannot believe that none of those interviewed understood the underlying purpose of FTSE in having these indices!!?? (shock)... Who needs another index to track stocks .... you can break it up to 100 different indices, so what, but that's missing the point. I think people at Bursa and FTSE would be choking on their coffee and muffins this morning when they read the comments. The biggest trend over the last 5 years, and the best product for Nasdaq has been Exchange Traded Funds. It is only natural that we see LSE trying to play some catch up with Nasdaq. Even though Nasdaq has bough a substantial piece of LSE, it does not control LSE. ETFs are an aggregation of a particular sector, groupings of stocks that reflect some sort of exposure to a certain sector or country. Each ETF would then have to buy a certain sum of the indexed stocks within and than trade as a basket. Depending on the attractiveness to the investors, an ETF may be cap at US$100 million or even US$500 million if its a much sought after ETF. For an ETF to work, it must be sizable so that there is good volume. People, thats the crux of having the new indices.... the attempts at warbling about non-existent implications, and the fact that the journalist and editor let it through speaks volumes of the overall lack of appreciation of things financial.

No comments:

That's Not The Way Share Market Works

Encik Shahril of Sapura Energy had to defend his total take-home package of around RM70m a year for the past few years. Specifically sin...