Introducing the UI Index

By Phil Boeyen

Friday 1st February 2002

Lists. Everybody loves them and share market indices aren't much different. Names like the Dow, FTSE and Nasdaq are universally recognised, with every movement hungrily watched by investors worldwide.

Well, here's another: the Unlimited/Iguana2 Index, or UI Index for short (you can call it the yewey, if you like). Like other indices, it will track the share price of the companies on the NZSE - but with a twist. It's not a list of the biggest, most traded or most capitalised stocks on the market. That would be both unoriginal and uninteresting. Rather, the UI Index has been designed to measure New Zealand companies "doing it right".

The idea is a combined effort by Unlimited and Iguana2, a Sydney-based stock market data collator and distributor. It will showcase New Zealand-listed companies demonstrating excellence in their field. The aim, according to UI founder and Iguana2 executive Ben Dutton, is twofold: giving investors a guide to quality Kiwi companies, and providing an example to other New Zealand businesses. "The arts and sports worlds showcase their top performers - this is the chance to do the same thing for New Zealand's listed companies."

The UI index isn't about short-term gains, but has nevertheless stacked up pretty well in its early days. Between November 1 and December 31 2001 the UI gross index outperformed the NZSE-40, rising 7% compared to the NZSE-40's 5.9. On the negative side it was more volatile, due to the Fisher & Paykel break-up process and because the UI has a smaller spread of stocks. Software of Excellence and Scott Technology have provided a strong boost, while Vending Technologies has disappointed.

Here's how the UI works. We've taken the three criteria venture capitalists use to assess investments: quality of management, quality of idea and size of market. Then a panel of six esteemed judges (see below) expanded the definition:

Management: The management must inspire both investors and the New Zealand business community though its entrepreneurial and innovative style. It must have a proactive communications strategy, including advertising, public relations and investor relations.

Idea: The company must have a strong emphasis on intellectual property, either as the basis of the business or as something it recognises and utilises to grow the company. It should also have a "good franchise" - providing a product or service that's needed, has no close substitute and is not constrained or protected by official regulation. A company with such a franchise can regularly increase its prices without fear of losing market share. (Okay, so we stole the idea from Warren Buffet.)

Size of market: The company must sell or license products and services outside New Zealand, or have the potential to expand through joint ventures and acquisitions.

We want to include companies that are so good they can take on the best in the world (or at the very least, Australia). We believe a company's future potential counts for more than its previous financial results. The companies also must have their primary listing on the NZSE, which means excellent companies such as Lion Nathan and Baycorp are, sadly, not considered.

Who measures up? Cadmus Technology, Fisher & Paykel Whiteware, Fisher & Paykel Healthcare, Frucor (for how long?), Genesis Research & Development, Scott Technology, Software of Excellence, Telecom, The Warehouse, Vending Technologies and Wellington Drive Technologies.

Each company is limited to 15% of the Index and the weighting is calculated by market capitalisation.

Who chose? The panel consists of Unlimited publisher Vincent Heeringa, co-founder of New Zealand sharemarket website www.sharechat.co.nz Ben Dutton, University of Canterbury accounting lecturer Alan Robb, Christchurch financial analyst and Unlimited columnist Roger Armstrong, Iguana2 co-founder Adam Rands and ShareChat business editor Phil Boeyen.

The index will be updated daily by Iguana2 on both UnlimitedNet and ShareChat.

Read more about the index and the companies tracked

Phil Boeyen

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