The Nigerian Stock Exchange (NSE) in another move to deepen the market has introduced the Pension Index. The Index values were exposed to the investing public last week.
The creation of the NSE Pension Index will encourage the development of other products such as Exchange Traded Products (ETPs) and Index Futures, according to the NSE.
Companies to be included in the NSE Pension Index must have Free Float Factor of at least 5percent. This is the first index on the NSE that gave consideration to Free Float. Also, companies must have paid dividend/bonus at least once in the last five years.
At the Nigerian stock market, most value companies would have qualified for inclusion in this Index but they are deficient in Free Float.
Also, the Index, provide a tracking mechanism for Pension Fund Administrators (PFAs), and Closed Pension Fund Administrators (CPFA) and others that follow the PENCOM guidelines. It can act as a benchmark for measuring performance and reporting performance to RSA Holders.
The NSE Pension Index includes the top 40 companies in terms of market capitalisation and liquidity. Adjusted market capitalisation of a listed company is the number of its listed shares, multiplied by the closing price of that company, multiplied by a capping factor.
Aside from the included stocks being 40, the NSE Pension index also possess the following features: The stocks are picked based on their market capitalisation from the most liquid sectors.
“Stocks and sectors were selected in line the Pension Reform guideline. It is a Total Return Index so that it can accurately measure equity portfolio performances, which capture returns from dividends, price changes and realised gain. Total Return Index will only be available end of day”, the NSE stated.
Iheanyi Nwachukwu
