IDLC launches first ever 'float-adjusted' index
Monday, 21 June 2010
FE Report
IDLC Finance Limited launched the country's first ever 'float-adjusted' index called IDLC-50 Sunday and thus became the first financial institution in Bangladesh to launch such an index.
The new stock market index will track the performance of 50 selected stocks traded in the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE), the authority said.
"IDLC-50 is based on the 'Float Adjusted Market Capitalisation Weighted' methodology and follows internationally accepted methodologies for stock inclusion or exclusion," said IDLC Managing Director Selim R F Hussain at a press conference in the city.
"This is the first time that such modern methodology is used in Bangladesh", he added.
Most of the world's major stock markets are usually tracked down by a number of indexes which are sponsored and managed by investment banks, research organisations and newspapers like S&P 500, Dow Jones Industrial and FTSE-100.
In Bangladesh, three indexes are currently tracking the performance of companies listed on DSE. They are the DSI General, the DSE General and the DSE-20 while the CSE also has three indexes - the CASPI, the CSE-30 and the CSCX. However, none of these are float-adjusted and are often cited as not being the full representative of the market.
"The current indexes contain many illiquid shares that cannot be traded easily in the market," the IDLC MD said. "Apart from that, they also include shares which are not regularly traded in the market," he added.
"IDLC-50 would overcome such limitations by updating the change of publicly traded portion of the companies' shares on daily basis," Selim said.
Explaining the stock selection criteria for inclusion in the IDLC-50, officials informed that stocks will be selected basing on key criteria including dividend payout, share price gain, Earnings Per Share (EPS), Net Asset Value (NAV), net income, market sensitivity, market capitalisation, trade volume, public portion of outstanding share, average market risk.
A number of other factors will also be considered for the inclusion, which includes the financial health of the company, regular trading in the market, investment risk, amount of investable shares, number of outstanding shares, price sensitiveness and price risk.
The stocks selected in IDLC-50 would be based on historical performance and past fundamental characteristics and repetition of previous performance of the selected stocks would not be guaranteed, the officials said.
"Float is an important factor in the Bangladeshi capital markets - as, for many listed companies, a small portion of shares is publicly traded," Selim said.
"So to accurately measure the performance of the market segment comprising the selected 50 stocks, it is necessary to perform the index calculation by adjusting the number of publicly traded shares, which we call float adjustment," he added.
The responsibility of maintaining the IDLC-50 has been delegated to Alif Assets while an Index Committee has been formed comprising capital market experts, fund managers, market participants and senior officials from IDLC and Alif Assets to monitor the index operation activity.
Officials however cautioned that the 50 stocks selected initially are not fixed and are subject to change from time to time depending on the selection criteria set by the Index Committee.
Therefore, the composition of the index should not be construed as advice to invest in the constituent stocks, they added.
"Still, the IDLC-50 would be a useful benchmark in measuring the performance of both individual listed companies as well as professionally managed portfolios including mutual funds and discretionary portfolio accounts," Selim said.
IDLC-50 performance data will be published in newspapers while detailed information such as quote details, liquidity data, portfolio characteristics and sectoral information will also be available on both the IDLC website (www.idlc.com) and Alif Assets' website (www.alif-amc.com)
Deputy Managing Director of IDLC Arif Khan and CEO and Director of Alif Assets Management Tanim Noman Sattar also spoke on the occasion.
IDLC Finance Limited launched the country's first ever 'float-adjusted' index called IDLC-50 Sunday and thus became the first financial institution in Bangladesh to launch such an index.
The new stock market index will track the performance of 50 selected stocks traded in the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE), the authority said.
"IDLC-50 is based on the 'Float Adjusted Market Capitalisation Weighted' methodology and follows internationally accepted methodologies for stock inclusion or exclusion," said IDLC Managing Director Selim R F Hussain at a press conference in the city.
"This is the first time that such modern methodology is used in Bangladesh", he added.
Most of the world's major stock markets are usually tracked down by a number of indexes which are sponsored and managed by investment banks, research organisations and newspapers like S&P 500, Dow Jones Industrial and FTSE-100.
In Bangladesh, three indexes are currently tracking the performance of companies listed on DSE. They are the DSI General, the DSE General and the DSE-20 while the CSE also has three indexes - the CASPI, the CSE-30 and the CSCX. However, none of these are float-adjusted and are often cited as not being the full representative of the market.
"The current indexes contain many illiquid shares that cannot be traded easily in the market," the IDLC MD said. "Apart from that, they also include shares which are not regularly traded in the market," he added.
"IDLC-50 would overcome such limitations by updating the change of publicly traded portion of the companies' shares on daily basis," Selim said.
Explaining the stock selection criteria for inclusion in the IDLC-50, officials informed that stocks will be selected basing on key criteria including dividend payout, share price gain, Earnings Per Share (EPS), Net Asset Value (NAV), net income, market sensitivity, market capitalisation, trade volume, public portion of outstanding share, average market risk.
A number of other factors will also be considered for the inclusion, which includes the financial health of the company, regular trading in the market, investment risk, amount of investable shares, number of outstanding shares, price sensitiveness and price risk.
The stocks selected in IDLC-50 would be based on historical performance and past fundamental characteristics and repetition of previous performance of the selected stocks would not be guaranteed, the officials said.
"Float is an important factor in the Bangladeshi capital markets - as, for many listed companies, a small portion of shares is publicly traded," Selim said.
"So to accurately measure the performance of the market segment comprising the selected 50 stocks, it is necessary to perform the index calculation by adjusting the number of publicly traded shares, which we call float adjustment," he added.
The responsibility of maintaining the IDLC-50 has been delegated to Alif Assets while an Index Committee has been formed comprising capital market experts, fund managers, market participants and senior officials from IDLC and Alif Assets to monitor the index operation activity.
Officials however cautioned that the 50 stocks selected initially are not fixed and are subject to change from time to time depending on the selection criteria set by the Index Committee.
Therefore, the composition of the index should not be construed as advice to invest in the constituent stocks, they added.
"Still, the IDLC-50 would be a useful benchmark in measuring the performance of both individual listed companies as well as professionally managed portfolios including mutual funds and discretionary portfolio accounts," Selim said.
IDLC-50 performance data will be published in newspapers while detailed information such as quote details, liquidity data, portfolio characteristics and sectoral information will also be available on both the IDLC website (www.idlc.com) and Alif Assets' website (www.alif-amc.com)
Deputy Managing Director of IDLC Arif Khan and CEO and Director of Alif Assets Management Tanim Noman Sattar also spoke on the occasion.