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ABAMCO Limited, Pakistan’s Premier Asset Management Company, has launched ABAMCO 30, Pakistan’s first free float-adjusted market capitalization index. ABAMCO Limited has a proven history of pioneering in many aspects of the investment industry. In 1997, ABAMCO’s flagship fund, UTP, was the first private sector open end mutual fund to be launched in Pakistan. Launched in 2002, UTP-Islamic Fund was the first Shariah Compliant Mutual Fund in the country. Now, ABAMCO 30 would be the first Index of its kind in Pakistan, especially designed to measure market performance from a rational investment perspective.

With long-term strategic investments, complicated holding structures, and large government stakes in various publicly traded companies, it is very difficult to separate out the actual investment component available to institutional and individual investors, especially in a developing equities market. Moreover, since liquidity mostly searches short term gains, market volumes are most visible in only a handful of shares, often ignoring other worthwhile investment opportunities utilized by medium to long-term investors. Such skewness creates an incomplete market profile, which can not be captured in a full market capitalization index.

Current indexes in Pakistan are usually based on full market capitalization methodology. This methodology though accurate in many developed markets, causes a skewed distribution of index weights among its constituent companies in smaller developing markets. ABAMCO 30 follows in similar vein to the Morgan Stanley Capital International (MSCI) Emerging Market Index that adjusts for free float. For example, only 2 of the 100 constituent companies in the KSE 100 Index account for almost 40 percent of the index. This proportion increases to 60 percent just by including 6 more index companies. Though such indexes are accurate market capitalization indexes, the level of distortion is self-evident since for an investor, an overly large proportion of market capitalization is simply not available for investment.

In contrast, ABAMCO 30 is based on an advanced free float-adjusted market capitalization factor. This computation methodology only takes into account that part of the share capital of a company which is readily available for trading in the market, eliminating unnecessary weight allocated through the share capital strategically held by the government or other investors. Representing only the investable portion of the market, ABAMCO 30 is further calibrated to include stocks of companies with fundamentally sound business prospects showing a viable degree of market liquidity, sectoral representation in the GDP, and fair prospects of future growth.

These critical adjustment and selection factors create true representation of an equity market in the process of rapid economic development. The fundamental advantage originating from the advanced free float methodology, combined with fundamental considerations for long-term prospects and liquidity, make ABAMCO 30 a benchmark index for performance comparison of mutual funds industry. ABAMCO 30 therefore represents market trends in a more rational manner, enabling both active and passive investment managers to benchmark their performance better as equity investment mangers in Pakistan are not allowed to invest more than 10 percent of their funds in a single company and not more than 25 percent of their funds under management per sector. The Index will be publicly available from June 20th.