Did you do better than the NSE in 2006? What was your strategy?

[bwalaman]

“The Nigerian Stock Exchange All-Share Index rose by 37.8% to close the year at 33,189.30.”

- A Review of the Performance of the Nigerian Stock Exchange in 2006 by Dr. Okereke-Onyiuke, OON. Section 2.4.

[SpecNomics]

Does anyone know whether the NSE All-Share Index (NSE ASI) is a Weighted or Price Index?

My understanding of a Stock Market Index is that its not so disimilar from any Individual portfolio, you choose an Index date, where your total market value equals 100, 10000, or whatsoever you choose, and you track from henceforth. This Index can be Weighted i.e. each company in the Indexs total nos of shares is included, thus the two most important variable in such an Index are Nos of Shares and MArket Price.

If the Index is simply a Price Index, the only variable is then the Prices of the Companies in the Index.

The index should ideally be closed i.e. the companies in it should remain constant, so be it Weighted or Index the yr to yr performance is comparable.

Now my question about the NSE ASI is, whether its closed or open? If its opened, my worry, then so long as IPOs are taking place the Index should be going up, all other things being equal, e.g. the Price and Nos of shares for companies already in Index remains unchanged.

Relating this back to Bwalaman's question on your performance against the Benchmark Index NSE ASI, reported to be 37.8 per cent, what I am questioning here is the reported performance. Pointing out that, knowing what sort of Index it is would enable us better appreciate our performance.

This might seem redundant in a bull market such has the one we are currently in, were many a people, both with and without strategy might have, overperformed the index. However, in bear or benign market, you might find yourself under performing the index, not because you actually underperformed but becuase the index might have been structured in such a way that IPOs are increasing value of the overall Index.

If anyone knows on what basis the Index is calculated share it with us, so we can know whether we are using a fair benchmark to assess our performance.

[bwalaman]

SpecN, you make an interesting point- checked, but couldn't find the Price or Weighted Index issue. May be Paragon / others can help out so we know for sure.

Another question, how did the mutual funds do in 2006? Anyone has access to some annual reports? I really like to see how they did compared to the index.

Lastly, I think 37% is impressive by any standard, what do you think?

[SpecNomics]

IBTC Equity Fund (Bid Prices used)
03/01/06 = 5,528.34
29/12/06 = 8,056.59
Return = 45.73%

That’s IBTC’s performances for the year. Surprisingly I could not get info. for ARM Discovery.

Going on your initiative, I visited the NSE webpage and this was the information available on the NSE ASI methodology:

"The All-Share Index: The Exchange maintains an All-Share Index formulated in January 1984 (January 3, 1984 = 100). Only common stocks (ordinary shares) are included in the computation of the index. The index is value-relative and is computed daily. "
(http://www.nigerianstockexchange.com/the_exchange.htm)

Value Relative would mean the index is weighted. This answers the first of my two question i.e. Is the NSE ASI a Weighted or Price Index.

My second question however remains unanswered i.e. Is the Index Open or Closed. I have never heard of an open index before, thus one must assume that the NSEs ASI is closed, and if this were the case then the 37 per cent performance is solid and Investors can consider using the Index has a benchmark for their performance.

But pls indulge me, the name, NSE All Share Index, infers that IPOs should ideally be included in the Index e.g. Dangote Sugar should now be included in the Index. Its the effect of this and other Corporate Actions that interest me. They increase the total market value of the Index, resulting in potentially high performance figures e.g. if Dangote Sugar represented 1/10 of the NSE ASI total market value, including it in the Index should result in a 10% increase in the Index translating in performance terms to 10%.

I am not sure how such actions are accounted for in an Index, but I know what it would look like on an Individual investors' portfolio, the cost of the IPO would be accounted for, and his(er) performance would not match that of the Index. If anyone knows how they are accounted for pls do share.

It is the lack of this knowledge that makes me hesitant to accept the 37 per cent figure esp. when so many corporate actions have been and are taking place on the Exchange.

So yes, the 37 per cent performance of the NSE ASI is impressive so long has IPOs during the yr were excluded, and that it only represents the yr on yr performance of those Stocks that were in the Index at yr beginning. Its only under this conditions an Individual investor could be fairly judged against the NSE ASI.

We all know the market was bullish last yr and that’s being continued this yr, so my musing might seem redundant esp. when investors, those with and without strategy probably over performed the NSE ASI.

The reason the point I’m making is important is when the Bear or Benign market comes round and we find the NSE ASI over performing us, then we might want to know why we are under performing. After all it is totally pointless putting in work to pick stocks when you could have simply tracked the Index and made market returns (Beta).

[bwalaman]

...Thanks Spec, I hope this is not one big bubble.

[bwalaman]

Top 5 Funds in 2006:

IBTC Ethnical & Equity Funds, Frontier Fund and Coral Growth Funds out performed the NSE ASI. Fidelity Fund didn't, but came in over 30%. See the link below.

http://www.ibtc.com/pdf%20forms/Unit...llYear2006.pdf