Sharemarket revamp will hurt Contact

The revamp will see Contact Energy's status on the main NZX 50 index drop sharply to 4.58 per cent. Photo / Christine Cornege

The NZX has announced plans for a major revamp of its sharemarket index system, which will include the introduction of a new NZX 20 index and a shake-up of the weightings on the main NZX 50 index.

The revamp will see Contact Energy's status on the main NZX 50 index drop sharply to 4.58 per cent under the new system from 8.73 per cent at present.

Auckland International Airport's weighting will drop from 8.15 per cent to 6.88 per cent, according to an indicative list released by the exchange yesterday.

The main beneficiary of the new rules will be Fletcher Building, whose weighting will go up to 12.54 per cent from 11.54 per cent.

Indices are an important tool for fund managers when it comes to how they weight their portfolios.

The so-called "passive" funds use them to apportion their portfolios directly in line with their index weightings.

A new methodology document will be released to the market by April 10.

The method of calculating indexed shares will change from the existing modified free float methodology to a pure free float methodology.

The "modified" free float method meant that companies like Contact, which has 52 per cent of its shares locked up with majority owner Origin Energy, was treated as if all its shares were trading on the market.

Instead, the NZX has gone for a pure free float, so only the shares not tied up in long-term strategic holdings will be included in its calculations.

The change will be applied to all equity indices, including the NZX 50, NZX 10, NZX Midcap and NZX 50 Portfolio Indices.

"NZX Indices considers such an approach is both simpler than the existing modified free float methodology and is aligned with the indexed share practice for other international indices," the exchange said.

The change will be implemented at the June 2012 index review.

The NZX will launch a new NZX 20 Index on April 23. The index will be a capital-only index with a weighting cap of 15 per cent for any single constituent.

Qualifying overseas and dual-listed stocks will be included on the NZX 20, which will have a starting value of 3000.