Hello,

 

In recent weeks we have covered several themes that could be filed under the heading ‘market composition’. This included where companies are listed and the impact of currency movements. As an active manager, our funds do not aim to track a stock market index. However, in keeping with the market composition theme, being attune to the movements of market indices can be informative. For example, whether an index is price weighted, market capitalisation weighted, or indeed otherwise, can have a profound effect on the subsequent price movements. 

 

Given the rise of index investing, when trading occurs during the day has evolved as index tracking funds rebalance in response to the daily price movements of their constituents. For example, it has been reported that almost a third of all daily stock trades for S&P stocks now take place in the last ten minutes of the day. Individual scenarios have also been closely watched in recent years. The inclusion of Chinese sovereign debt into MSCI indexes in 2019, or the addition of Tesla to the S&P in 2020 generated significant trading activity. Given all the above examples are widely known, they don’t provide an advantage in isolation. However, knowing what you own, the process for its inclusion in your fund, and how it is priced is never a bad starting point for an investor.

 

As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.