Energy Sector Index: List of stocks 0 comments

One of the hottest multi-year themes must be the rise of the oil and gas sector and all related industries, so I've come up with an index composed of SGX-listed energy-linked stocks that I know to be followed by most investors in relation to the energy theme.

The list of stocks totals 25, and similar to the China stocks index, are chosen on the basis of the following:
1. Market cap
2. Trading liquidity
3. Track record
4. Expectation of future performance (stability, growth, trading liquidity)
5. Intangibles (eg. institutional coverage, relevance to China sentiment, mindshare in investors' and traders' general attention span)

The index will be weighted by market cap, as per normal, which means stocks like SPC and Keppel will have a bigger weightage. Originally I was thinking of using an unweighted price index in order that mega-stocks like Keppel and SembMarine do not overwhelm with their gigantic market caps; however in alignment with the value-weighted approach taken by the SES sector indices I decided on a market-weighted approach as well but using the adjusting index factor (similar to my China stock index) to scale down market caps of the blue-chips.

The deciding of the index factor is rather arbitrary, but basically the idea is to bring effective market caps of Keppel Corp and SembMarine below that of SPC, which as the de facto national oil company has got to be seen as the most heavily-weighted energy-themed stock. Keppel Corp consists of other arms like Keppel Land, so its index factor(0.15) is halved again compared to SembMarine's(0.3). Some explanations for the rest:

Noble - energy commodities merchant, but also handles agricultural commodities
K1 Ventures - partly energy-related portfolio
Tat Hong - also involved in non-energy related infrastructure
Boustead - energy-related business is only one of its businesses

The general weighting for the various energy-related sectors is as shown:

A reasonable distribution considering Singapore's world-leading strengths in rig construction and refining hub status, hence their heavy weightage.

I have decided to backdate the index such that it starts on the same base as my China Stocks Index ie. on Jun 9 2006. Hence there is a ready curve from Jun 9 till today.

Placements, delistings, rights issues of the index stocks will adjust the base market cap. So far I've had a chance to, since Interra and Ausgroup have placed new shares since Jun 9 (not to forget Ezra's 1:5 bonus, but that does not alter the base market cap). The maths as follows:

1. Rights Issue
Adjusted Base AMV = Old Base AMV x (Old Current AMV + Payment for Rights)/(Old Current AMV)

2. New Listing
Adjusted Base AMV = Old Base AMV x (New Current AMV including New Listing)/(New Current AMV excluding New Listing)

3. Delisting
Adjusted Base AMV = Old Base AMV x (Old Current AMV excluding Delisting)/(Old Current AMV including Delisting)