Originally Posted by
Muse
Yes getting close and going to be an interesting one to put into my little database of all the NZX50 inclusions over the last several years (capturing price trends before the inclusion and after, together with how liquidity played a role in it). Will be interesting to see how it compares to the recent HLG experience. I see the later had an intra day peak at $6.94 on 8th of May, wound up 2 days later closing on $6.85 at the closing match the final day. It'll also be interesting to see how Turners' comparatively better liquidity (than HLG) feeds into the price dynamics. The required shares for inclusion were both roughly 2.5% of total shares, but Turners average daily volume in the 250 trading day sessions prior to the announcement, as a percentage of total shares, was about 1.3x that of HLGs. Likewise, it has a 'looser' / more available register. By that I mean while it has terrible liquidity and underrepresented institutional ownership it still has a lot more available large blocks and small insto holdings that are available to wrapped up into selling blocks, rather than HLG which had a true mum and pop share register.
I've a database of all the NZX50 inclusions and I started calling them index pops, which seems to have caught on. But I named it that because it illustrates both sides of the inclusion; the enthusiasm and price run leading to the inclusion, and more often than not level of reversion thereafter. Sort of like blowing up a balloon fast, and letting the air out fast or popping it. People tend to focus on the first, more fun, phase.
In my post #8122 on this thread I speculated as to how the ETFs go about purchasing their shares (and by instos we are really only talking about the Smartshares NZX50 ETF), which is just speculation, I don't know first hand how they go about doing it. I've talked to a friend who works overseas for Dimensional Fund Advisors and he said Dimensional purchase all their shares for index inclusion in the final closing match. I have a call with someone at Smartshares on how it works in NZ so will be interesting to learn more about it over here.
But in my post #8716 on the HLG thread I talked to the overhang/hangover factor in index pops. Clearly a lot of the volume in the many months, and weeks, ahead of an inclusion are speculative purchases looking to bag a quick gain. And often with high expectations and aren't necessarily committed long term owners. The excess shares traded above what is actually required for the inclusion, and the level of the price gain relative to the expected pop I reckon has a big impact on the the short and medium term price dynamics post inclusion. Or particularly when retail buy shares thinking the ETFs will be forced to buy from them when often in reality the ETFs are already sorted in advance. I reckon HLG had a 1.2m share overhang post inclusion (worth recalling for instance 1.74m shares traded on the final day, 260k more than the 1.482m shares required for the inclusion) which would have played a role in its steep reversal. I reckon a lot of people purchased with spec intent after hearing & thinking it was going to the moon and when it didn't they started selling fairly aggressively to avoid the downslope of the reversal.
Not saying that will happen here and but I think the market psychology of how these work is interesting and each one a good learning experience (and perhaps that is playing a role here so far too). From my core, dividend holding perspective, I wouldn't care too much if the price didn't pop as I place my value on price stability and predictable appreciation over the volatility. But of course, there is always a price. Only a few more sleeps.
ps will share some of my index stuff after the inclusion.