High hopes over index launch

Sam Stanley, NZX's head of exchange products, said there had been a lot of interest in the contracts from domestic and overseas fund managers. Photo / File

The NZX's new Index Futures - which launch today - could stabilise the market and reduce volatility to the benefit of all investors, including KiwiSaver users, a fund manager says.

But Greg Peacock, chief investment officer at Auckland investment firm NZAM, says the contracts that will trade off the NZX20 index will only become a useful tool if there is sufficient demand for them.

"Previous contracts have failed for lack of interest from local investment managers," Peacock said. "If the new NZX20 Index is unsupported, they too will have insufficient liquidity to be a viable tool."

Index futures are largely used by fund managers for hedging against risk and "equitising" funds to avoid holding cash.

The contracts are essentially an agreement between a buyer and seller on a price for a future index value. The NZX20 - which includes some of the country's most heavily traded stocks including Telecom and Fletcher Building - closed at 3995.2 on Friday.

Sam Stanley, NZX's head of exchange products, said there had been a lot of interest in the contracts from domestic and overseas fund managers.

NZX's last foray into equity futures, which ended in 2008, wasn't a great success as a result of liquidity issues and a lack of investor uptake. Peacock said fund managers had become more sophisticated and placed greater emphasis on "active risk management", which should drive demand for the NZX20 contracts.