Index reshuffle lifts Briscoe Group as Australian holiday subdues trading
A rebalancing of New Zealand's benchmark index has benefited one listed retailer at the expense of another.
The S&P/NZX 50 fell 0.19% to 12,539.26 points after a slow day on the share market, in which $65.4 million of equities changed hands.
Peter Sigley, director of institutional sales at Forsyth Barr,
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What is going on with Briscoes shares?
Briscoes shares have had a boost in recent days, ahead of the company moving into the top 50 stocks on the NZX share market tomorrow. Falling share prices pushed The Warehouse out of the NZX50, and Briscoes will take its place. That means that passive managed funds that benchmark their funds to the NZX50 will snap up stocks in the company too. Its share price has lifted from less than $5 at the start of the month to $6.19 on Thursday. Greg Smith, head of retail at Devon Funds, said there had been a lot of pre-buying ahead of Briscoes moving up on Monday morning. He said that meant the bump in share price was unlikely to be so significant. ADVERTISEMENT "Going into the 50 means it is a lot more relevant to institutional managers although with Rod Duke owning nearly 80% of the stock, getting liquidity will be an issue." Greg Bunkall, data director at Morningstar, said the number of passive funds benchmarked to the NZX50 would not be large. "Maybe 10 or so share classes, both traditional managed funds and ETFs. "There may also be some of the ESG tilted options, which, depending on the screen might be impacted - then there is also the multi asset funds which have the index fund as a part of the overall portfolio." 'Self-cleansing mechanism' Dean Anderson, founder of Kernel KiwiSaver, said it was relatively unusual for stocks to move in and out of the top 50. "Every quarter, major benchmarks like the S&P/NZX 50 undergo a rebalance, testing each company's eligibility for the index and where underperforming companies can be dropped and stronger ones added. ADVERTISEMENT "This self-cleansing mechanism ensures indices stay relevant-poor performers are replaced by those that have grown in value, often overtaking the bottom-ranked company in the index. "In a small market like New Zealand, though, such changes are rare, often one or two changes in a year, making them all the more noteworthy when they happen, with the last change to the S&P/NZX 50 index rebalance occurred in December 2023." He said the Briscoes share price had already lifted 28% since it was announced it was going into the top 50. Some investors had sold shares in The Warehouse. "Globally, this isn't unusual. Studies show that stocks added to major indices like the S&P 500 often see short-term price spikes of 3% to 8% in the days leading up to inclusion, driven by speculative buying and index fund rebalancing. "However, the scale in these spikes is falling and these gains frequently fade within weeks as the initial hype subsides - which can leave some speculative investors out of pocket." He said some active manager might be trying to game the rebalance by betting on short term movements but the risks could outweigh the rewards. Sam Stubbs, founder of Simplicity KiwiSaver, said his funds were benchmarked against the top 30. He said beyond the top 30, it could be hard to buy and sell shares. He said Briscoes' presence in the index was likely to be weighted so that only 20% of the company's value was reflected because of Duke's significant holding.
