XTR – free float

A free float index of 30 stocks XTR -30 FREE FLOAT can not be constructed just from BVB stocks. We need to combine the RASDAQ and BVB offering. And since there was no available broad market index, which we could just rehash and present the XTR – 30, we got to work on the XTR – 100, Romanian broad market index. An index basket of top 100 market capitalized and tradable stocks that represented the Romanian market universe. We combined the list of stocks from RASDAQ and BVB and made a composite list of 150 stocks, screened them on basis of market capitalization, economic sectors, economic cycle sectors based on global classification (GICS).
This exercise not only brought out interesting observations about the Rasdaq market, but also that there is a broad investable market existing in Romania as demonstrated by the XTR 100. Just like blue chip indices (XTR 21 and BET), broad indices play a significant role in the market. Internationally we have the MSCI US Broad Market Index, which represents approximately 99.5% of the capitalization of the US equity market. It is the aggregation of the MSCI US Investable Market 2500 and the Micro Cap Indices. The MSCI US Broad Market Index represents a greater proportion of the US equity market cap than the most commonly used broad market indices. Then we have the Russell broad indices which replicate the total market through a limited number of stocks.
Broad indices assist in many ways. First, they allow to rank each company in the investable universe according to its total market capitalization. Second, the ranking based on capitalization helps eliminate non tradable shares. Third, after float adjustments the broad benchmark most accurately reflect the market. Fourth, broad market indices objectively allow the market to determine the index composition according to clear, published rules and not on a subjective vote of a selection committee. Fifth, the respective broad index matches manager’s behavior and include all the securities that investment managers could actually buy.
To answer some questions that may arise now, like how is XTR 100 a broad market based index for Romania? XTR 100 is composed of 48 stocks from BVB and 52 stocks from RASDAQ. All this 100 stocks together cover 85% (excluding ERSTE*) of Romania market universe. This is the reason XTR 100 is the most broad based investible index in the market today.
How does the XTR 100 rank among the other indices available in the market today? The very fact that XTR 100 sectoral composition is similar to that of BVB places it within the existing universe of indices well while retaining its broad based characteristics. XTR 100 is composed of 37% Financials, 34% Energy, 11% Materials, 6% Utilities and 6% Industrials. The other sectors like Pharma, Discretionary and Staples weigh around 1.5% each. From the economic cycle sector point of view, just like the market universe and BETC, XTR 100 has a large part coming from Late Economic cycle at 39% and Early economic cycle at 54%. Middle expansion economic sector (i.e. Industrials etc.) make 6% of the universe.
What are the most interesting aspects of the XTR 100? The most interesting aspect of the index is that unlike popular belief RASDAQ is a more significant part of Romanian investible universe today. XTR 100 has more stocks coming from RASDAQ than from BVB stock list. And this might look strange as BVB is assumed to have the larger capitalized stock list. Another interesting aspect is that though the filters for stock selection were based on market cap and tradability there were a homogeneous representation across both markets viz. BVB and RASDAQ across individual sectors and economic cycle sectors. For example there are 14 Industrials stock from BVB and 14 from RASDAQ which make the list. A similar situation exists for Materials stock 11 come from BVB and 13 from RASDAQ. The similarities extend into Energy sector which has a break of 4 (BVB) and 3 (RASDAQ).
Speaking sectorally, how different is RASDAQ market from BVB? RASDAQ is more homogeneous than BVB composition as most of the sectors like Industrials, Materials, Discretionary, Financials and Staples are represented well. It is the Energy, Pharma and Utility stocks that are underrepresented in RASDAQ. Even from a market capitalization perspective, barring Pharma and Utilities sector all the other six sectors are well represented. Industrials is the largest market capitalized sector. Even from the economic cycle sectors the market is balanced. All the three economic cycle sectors have more the 30 stocks each.
We will be introducing XTR 100 performance along with other indices we track viz. XTR 21, BET, BETC and BETFI. The week that went saw XTR 21 once again outperforming the BETFI. The XTR 21 large and small caps did better than the universe large and small cap. The index was up 2 percent for the week ending 04 April 2008.
Enjoy the latest XTR.070408