The new King’s Index is a bit of a mixed bag, writes Jan Maarten Slagter
With only 100 metres to separating the palace on Dam square and the Damrak, the Amsterdam stock exchange is the royal family’s jovial neighbour, the kind that’s always in for a party and likes to tell risqué jokes to a straight-laced aunt.
Remember the big banner the building sported on the occasion of the royal wedding in 2002? ‘Go for growth’ it said, which wasn’t only a creative reference to the slogan of the stock exchange at the time, but also a slightly too explicit admonition to the couple to produce an heir and a spare, pronto. The banner was removed before the newly-weds could clap eyes on it and ponder the helpful suggestion.
The investiture provided another opportunity for a share in the festivities, but this time the waggish neighbour moderated his tone and minded his own business. Last week NYSE Euronext launched the ‘King’s Index’. The new index is made up of listed companies which are entitled to carry the royal predicate. At the moment there are 17 such companies, from exchange giant Royal Shell to tiny Royal Porcelijne Fles and Royal Brill.
What makes this index even more festive is that, since the investiture of queen Beatrix, its newly combined companies have left the AEX index trailing in its wake. Royal companies have been consistently beating the competition, especially during the last five years. According to the stock exchange this is proof of ‘better-than-average performances by stable companies’.
A more pertinent reason is probably the Royal family’s remarkably astute and prescient decision, made as early as the 19th century, not to allow financial institutions to carry the royal predicate. This has meant the index was spared the worst of the financial crisis.
The royals are subject to the same laws as the investors: past results are no guarantee for future success. Is it wise for investors to follow the King’s Index? To be honest, and with respect to the honourable names on the list, it does seem a bit of a mixed bag. Prominent AEX funds like Philips, DSM and Ahold are rubbing shoulders with Midkappers Ten Cate and Wessanen and Alternext fundlet Reesink. ‘High frequency’ fund Douwe Egberts finds itself in the company of troubled Imtech and equally troubled (although for different reasons) Post NL and KPN, while French (Air France) KLM and British Shell also put in an appearance.
Companies like Reesink, Porceleyne Fles and Brill are so small they hardly cause a ripple. The big companies represent a relatively high weight – up to 30% compared to the AEX’s annual reweighting which has a ceiling of 15%. This will make the investors who follow the King’s Index very vulnerable to the performances of Shell in particular, followed at some distance by Philips, Ahold and DSM. The King’s Index is not orange but yellow and red.
A wise investor’s portfolio contains different sectors, countries and individual shares (apart from other investment tools). Looking at it from this point of view, the King’s Index is not a a very safe bet. The big companies simply carry too much weight. All in all, the King’s Index is a nice gimmick and a lot less embarrassing than a banner with an iffy slogan.
Jan Maarten Slagter is director of the Dutch investors’ association Vereniging van Effectenbezitters (VEB).