The FTSE/JSE Top 40 Index is due for its quarterly rebalance, and the changes for this quarter will become effective as of 18 June 2018. This round we should see two companies added to the index and two removed.
On Monday 28 May, the JSE published indicative company free float adjustments for the upcoming index rebalance. Based on this data, CLS and NTC should be added to the Top40 Index, and RNI and IPL should be removed. A comparison between the current Top40 Index (Table 1) and Top40 ALSI shares with the new free float figures (Table 2), can be seen below:
Prices as at 29 May 2018
Constituents as at 02 May 2018
The comparison shows that CLS and NTC should be the new members of the Top40 Index after the June 2018 rebalance. According to the FTSE/JSE index rules, existing index constituents ranking below 46 by market cap qualify for auto deletion, and non-constituent companies ranking above 35 will automatically form part of the index. In this case, both CLS and NTC meet the criteria for inclusion.
In order for the number of index constituents to remain at 40, the two lowest ranking existing constituents would have to be removed from the index. These two companies are RNI and IPL.
An important result of an index rebalance is that benchmark tracker funds would have to rebalance accordingly, which could cause selling pressure on deleted shares and provide support for the new additions.
*Results are based on the indicative free float adjustments released by the JSE on 28 May 2018 and should therefore not be considered as final. The final index shares and adjustments will be announced by the JSE on 1 June 2018.
Joani van Wyk
Joani van Wyk joined the asset management team in January 2017, responsible for quantitative research of equities across all industries. Joani completed her degree in Mathematical Science in 2015, as well as an Honours degree in Financial Risk Management in 2016, both at the University of Stellenbosch. She is currently a CFA candidate.