INTRODUCTION
The S&P South Africa 50 is designed to represent the South African equity market by selecting 50 of the largest companies listed on the Johannesburg Stock Exchange, including both South African and foreign-domiciled firms. To reduce concentration risk, no company can account for more than 10% of the index weight at each rebalance.
In comparison with the often-used FTSE/JSE Top 40, the S&P South Africa 50 provides broader coverage and greater diversification, which contribute to its historically lower volatility and higher risk-adjusted returns.
EFFECTIVE CORE REPRESENTATION
Accessing the target market through a limited number of stocks is a hallmark of efficient investable indices. The S&P South Africa 50 addresses the need for an efficient index for product tracking that remains representative of the characteristics of the broad market S&P South Africa Composite.
Exhibit 1 illustrates the historical returns of the S&P South Africa 50 against the backdrop of S&P South Africa Composite and the FTSE/JSE indices, which attempt to reflect a similar target universe. The S&P South Africa 50 effectively captured the return profile of the broader market.
TIGHT TRACKING ERROR DEMONSTRATES CLOSE REPRESENTATION
The tight tracking of the indices and comparable history illustrate the ability of the S&P South Africa 50 to efficiently replicate the return profile of the broader South African equity market. Since its inception, the S&P South Africa 50 has delivered a relatively low tracking error of 1.9% per year against the broad market FTSE/JSE All Share, while the FTSE/JSE Top 40 posted a somewhat higher 2.0% tracking error against the same benchmark.
The inclusion of 10 additional stocks in the S&P South Africa 50 has contributed to its ability to represent the broad market. The index covers over 94% of the float-adjusted market cap of the FTSE/JSE All Share, while the FTSE/JSE Top 40 accounts for a lesser 88%.
