A common question among Kiwi investors, now more than ever, is “what is the NZX50”? It’s a good question. So here’s a post about what the NZX50 is. So if you already know what the NZX50 is from front to back, then you might want to skip this one.
- Intro to the NZX50
- What Companies make up the NZX50
- What Industries are the NZX50 companies in?
- How to Use the NZX50 to Make Money
- How can I Invest in the NZX50
- Past Performance of the NZX50
- NZX50 vs. Other Share Market Indexes
- Final Words
Intro to the NZX50
The NZX 50 is a share market index that tracks the shares of the 50 largest NZ companies. An index is just a fancy word for a particular group of traded companies sorted in some way. The NZX just happens to track the top 50 companies- but you can many different types of market Indexes.
The top 50 companies are a good representation of the New Zealand share market’s performance. You as an investor can use it as the benchmark of the overall market, or to compare all your other investments with. You can even invest in an NZX50 directly through an NZX 50 index fund.
The NZX50 index was introduced as the NZSX 50 Index in January 2000 and replaced the older NZSE 40 Index as the headline index for New Zealand. The NZSE 40 is also sometimes referred to as the NZX40. The NZSX 50 Index had a base value of 1880.85 (NZX 40 Index closing level on the previous day) as of December 29, 2000. It was renamed the NZX 50 Index in late 2005. Just last year the Index passed 12000.
What Companies make up the NZX 50
The NZX50 is comprised of the 50 largest companies traded in New Zealand- so if you are going to invest in the index, or even track the index, you should probably know which companies are actually represented. It’s often easy to get a list of the top 10 companies in the index in investment disclosure documents, but the remaining 50 are somewhat harder to find. The List of Companies in the NZX50 is below- remember- this list does change over time as companies get bigger and smaller.
As of March 13, 2020, the 10 largest companies in the NZX 50 were:
- Fisher & Paykel Healthcare Limited
- The A2 Milk Company Limited
- Spark New Zealand Limited
- Meridian Energy Limited
- Contact Energy Limited
- Chorus Limited
- Mainfreight Limited
- Fletcher Building Limited
- Ryman Healthcare Limited
- Mercury NZ Limited
The Top 10 companies make up about 52% of the index. The remaining 40 companies are also well know to most Kiwis. They are all in the table below.
We all know of Kathmandu, Spark, and a few of the Aussie banks, but there are also many companies that you may not have heard about, such as the Vista Group, Property for Industry, Goodman property trust, etc.
What Industries are the NZX 50 companies in?
As I mentioned earlier, it comprises the 50 biggest stocks by market capitalisation (market value) trading on the New Zealand Stock Market. So what sectors are these companies working in?
Health care, utilities, and industrial makeup more than 50% of the NZX50 with companies such as Fisher & Paykel Healthcare, Auckland Airport, and several power companies.
The weighting of each sector of the Index does change overtime with the changing share price of each company- and if a company drops out of the NZX50 and another comes in- but overall it stays roughly the same.
How to Use the NZX50 to Make Money
You could mimic the NZX50’s performance by buying shares of each company in the NZX50. You would have to be sure to weigh the stocks in your portfolio according to the percentage weighting of the NZX 50. That’s a lot of work.
A much easier approach is to buy an index that does this for you. An NZX50 index allows you to invest in all 50 companies exactly like the NZX 50. There are several NZX50 indexes. One is the Smartshares NZ Top 50 ETF (although this doesn’t truly follow the NZX50 as there is a 5% weighting cap on each company- its called the NZX 50 Portfolio Index), another is the AMP Capital NZ Share Index Fund which is a diversified portfolio of predominantly New Zealand shares with the aim of outperforming the NZX 50 Index. Check out more about NZ index funds here.
You should use the NZX 50 as a leading economic indicator of how well New Zealand’s economy is doing. If investors are confident in the economy, they will buy shares, and the index will go up. If investors are not confident, they will sell shares and the index will go down. Just remember that if you are investing in the long term there is no point in monitoring the index closely. Rather- you can use Dollar Cost Averaging to take advantage of both the ups and downs.
Since the NZX50 only measures NZ, stocks, you might want to consider also investing in foreign markets. That includes emerging markets like China and India. This helps diversify your investments. One suggestion might be the S&P500, which tracks the largest 500 US companies. Another might be a Total world fund such as one of the Vanguard, iShares, or AMP Capital All Country Global Shares Index Fund.
It may also be a good idea to keep some of your investments in commodities, like gold, or bonds and fixed interests. They tend to hold value longer when share prices drop. When share prices go down, bond prices tend to go up and when share prices go up bonds tend to go down.
How can I Invest in the NZX50
Buying individual shares in all the companies on the NZX50 is quite a process. You could do this through the likes of Sharesies or other online brokers. A much easier way is to buy into one of the funds that track the NZX50. The common ones are the Smartshares NZ Top 50 ETF and the AMP Capital NZ Shares Index Fund. Both have a relatively low fee- Smartshares at 0.50% and AMP Capital at 0.33%- there is a buy-sell spread with the AMP fund of 0.44%.
InvestNow offers you access to both the Smartshares NZ Top 50 EFT and the AMP Capital NZ Shares fund which is a diversified portfolio of predominantly New Zealand shares with the aim of outperforming the NZX 50 Index- along with over 100 other funds. Their platform is free and you can start investing with as little as $50.
Sharesies offers you access to both the Smartshares NZ Top 50 EFT, and the Smartshares NZ core equity trust fund- which aims to provide long-term capital growth by investing in companies listed in New Zealand (many of which are in the NZX50), but with increased exposure to small companies and value companies.
Kernel offers other NZ funds such as the NZ20 and NZ level 9. The NZ20 Fund is comprised of the largest 20 companies listed on the NZX. And the NZ level 9 fund gives you access to around 40 smaller and growing NZ companies
Past Performance of the NZX50
As of April 2020- the NZX 50 has returned 476% since the year 2002.
Historically, the New Zealand Stock Market (NZX 50) reached an all-time high of 12107.45 in February of 2020- just before COVID 19- which was a 545% return since 2002.
To check out a live chart of the NZX 50 go to Trading Economics or just google NZX 50.
The average yearly return between 1993 to 2019- combining the NZSE 40 and NZX 50, is 8.83%. The yearly return does have quite a large range- from -32.8% to 39.8%. That’s why it’s usually better to look at an average return over any given 10 or 20 year period. The average return over any given 10 year period between 1993 to 2019 was 7.09% with a range of 1.80% to 13.94%. Looking at the average 20 year period improves the range from 5.06% to 9.74%.
|Period||Average Return||Range of Returns|
|Average 1 year period||8.83 %||-32.80 % to 39.80 %|
|Average 5 year period||7.36 %||-3.01 to 16.12 %|
|Average 10 year period||7.09 %||1.80 % to 13.94 %|
|Average 20 year period||7.14 %||5.06 % to 9.74 %|
Investing in the NZX50 over the long term greatly improves your odds at getting a positive return. This is expected as you would be investing in shares. Common advice is to be invested in shares for at least 10 years.
NZX50 vs. Other Share Market Indexes
The NXZ50 isn’t the only index available for the NZX. Here are some of teh other indexes;
- NZ top 10- The largest 10 companies on the New Zealand stock exchange
- NZ Mid Cap-The 11th to 50th larges companies on the New Zealand stock exchange
- NZ Dividend-The 25 highest Dividend stocks from the 50 largest companies on the New Zealand Stock exchange
But a more well-known index is the US 500, or S&P500. The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. You can invest in the S&P500 in a similar way to investing in the NZX50, and it will provide you with some geographic diversification.
The NZX50 is one of the most popularly known index kiwis know about- the S&P500 is probably the most widely known index fund in New Zealand. You as an investor can look to the NZX50 when assessing how the overall share market in New Zealand is doing. As such, this index is considered a leading New Zealand economic indicator.
It tracks 50 of the largest publicly traded New Zealand based companies. These businesses must meet specific criteria in order to be a part of the NZX 50. The mix of industries that make up the NZX50 list often reflects the economic makeup of New Zealand.
You as an investor can purchase shares of companies listed on the NZX50 individually or invest in index funds that track the NZX 50.
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