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The FTSE/JSE Top40 Index (TOP40) is an index that tracks the performance of the top 40 stocks listed on the FTSE/JSE All Share Index. The latter of these indices follows all the stocks listed on the Johannesburg Stock Exchange (JSE), with the TOP40 index acting as a blue-chip index that includes only the 40 companies with the highest investable market value.
This page will take you through a brief history of the TOP40 index, give you the information as to how the stocks it tracks are selected, and let you know how you can invest in its performance over time.
The FTSE/JSE Top40 Index was launched on June 21st 2002 with a base value of 10,399.53. It is part of the FTSE/ JSE Africa Index Series, the purpose of which is to analyse the strength of the South African economy accurately and provide indices that track companies traded on the Johannesburg Stock Exchange.
The Johannesburg Stock Exchange (JSE) is Africa’s largest stock exchange, with over 400 companies listed and a market capitalisation of over $1 trillion. The TOP40 index follows the 40 stocks on the JSE with the highest market capitalisation, representing over 80% of the exchange’s total market capitalisation and giving a valuable insight into the economy of South Africa.
The TOP40 index has seen impressive growth over time, with a rise from 10,399.53 on June 21st 2002 to a level of over 53,269.83 on 1st November 2017. Over this time, this impressive growth rate was quite steady, with the exception of 2007-08. While the index fell sharply in the wake of the global financial crash, it staged an impressive recovery and continued to shoot up.
Early signs are that a similar effect is being seen in the wake of the COVID-19 pandemic. The FTSE/JSE Top40 fell to 34,175.00 on 19th March 2020, but had recovered to 52,783.70 by July 21st of the same year.
The FTSE/JSE Top40 Index is compiled of the 40 stocks traded on the Johannesburg Stock Exchange with the highest market capitalisation. All stocks listed are tradeable and the index is designed to reflect the most investable companies, creating a reliable performance benchmark for investors in the South African economy.
While you cannot invest in indices directly, there are a variety of tools you can use to invest in a way that follows their performance. The most common ways of investing in the FTSE/JSE Top40 Index are ETFs and mutual funds. An ETF is an ‘exchange-traded fund’ which gives you a diversified investment covering the stocks tracked by the TOP40 index, and can be traded on an exchange at any time during trading hours.
Mutual funds pool investors’ money with a fund manager directing investments to generate profits for everyone putting money into the fund. A TOP40 mutual fund (also known as a TOP40 index fund) also gives a diversified investment into the performance of the FTSE/JSE Top40 Index, but unlike ETFs mutual funds can only be bought or sold at the end of each trading day. If you’re looking to trade rather than buy and hold for the long term, it’s generally better to use an ETF.
Alternatively, another option open to you is simply to buy shares in all 40 companies listed on the FTSE/JSE Top40 Index. This is more time consuming, and more expensive due to transaction fees, but gives you more control over exactly which stocks you hold in your portfolio.