Fall in ISEQ ETF much greater than fall in ISEQ

Brendan Burgess

Brendan Burgess

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The ISEQ fell today by 1.72%, but the ISEQ ETF fell by 6.72%.

I thought that it would mirror it very closely and that the price of the ETF was the break up value of the constituent shares.

Does that mean that there is some market inefficiency?

Brendan
 
Does the ISEQ ETF have any rules about some individual shares not having too much of a weighting which might make it not strictly the same as the ISEQ itself?
 
Brendan said:
The ISEQ fell today by 1.72%, but the ISEQ ETF fell by 6.72%.
Click to expand...

According to the Irish Stock Exchange website, the ETF is down only 1.28% today:

(By the way Sign you are right, the ETF tracks the ISEQ 20 index, which is distinct from the overall ISEQ index. The ISEQ 20 is an index of the 20 largest companies on the Irish Stock Exchange, weighted by market cap.)
 
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Also the ISEQ is determined based on the free float methodology i.e. each company is weighted based on the value of their shares that are available to be bought and sold and therefore excludes the value of long-term / strategic holdings e.g. McCann family's holding in fyffes. ISEQ etf doesn't seem to use the free float methodology in determining the weighting of each of the 20 constituent shares.
 
I cant find the tread but a few months ago a similar event happended except the iseq fell by a large amount and the eft only fell by a small amount (or it may infact have risen). The reason given at the time was that people saw it as a buying opportunity so purchased the etf and that held the price up.
 
Whats the point of having an ISEQ set of calculations based upon free float or whatever if its not applied to anything ? (as distinct from the ISEQ ETF)
 
The ISEQ is based on the free float.

The Top 20 shares in the ETF account for about 95% of the ISEQ, so there should be almost zero tracking error.

gonk has pointed that the ETF is down by only 1.28% so it looks as the simpler explanation that RTE quoted the wrong figures.

Brendan
 
gonk said:
Where did you hear this?
Click to expand...

NCB is the promoter and manager of the ISEQ 20 ETF and they don't refer to using the free float approach in determining the weightings of the 20 stocks.

Quote from their website:
The ISEQ® 20 ETF will replicate the performance of the Irish Stock Exchange’s ISEQ® 20 Index by buying the constituent shares of the Index in their correct weightings.

See link also:


ISEQ change 1.72%
ISEQ ETF change 1.28%
Outperformance of ETF: 26%

Given the %'s above I'd say the free float approach to valuing the ISEQ does have an impact on the relative performance considering, in particular, shares such as Smurfit Kappa and Independent Newspapers where there are long-term shareholders present.
 
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