Kuwait 15 Index: Improving alternatives


On 16 December 2010, the Kuwait Stock Exchange announced plans to launch a new index, called “Kuwait 15”. The constituents of the new “Kuwait 15’ index would be calculated based on both market value and value traded and would include top 15 companies listed on the KSE from across the sectors and is expected to start in November 2011.

According to a new report by Kuwait Financial Centre “Markaz”, the new index would be a better indicator of the overall market for the following reasons:

  1. Many companies in the current benchmark are not traded frequently thereby distorting the returns of the index.
  2. The Top 15 index would represent market leaders and this will improve the quality of the index.
  3. Moreover, as there are only fifteen stocks in the index, it will be easy for portfolio/fund managers to replicate the index, and hence, the tracking error of the portfolios based on this index would be low.
  4. As the constituents of the index would be reviewed every six months and based on the author’s calculations, a major churn in the index is not expected, consequently, passive tracking this index would not involve much trading cost.

However, the report expresses reservations as to whether fifteen is an appropriate number of stocks for the index and whether it will be able to reflect the true market scenario at all times.

While the launch of the Top 15 index will add to the existing group of indexes available, the authors feel this index will play a greater role for future fund launches.

In June 2011, Kuwait Stock Exchange picked the following 15 firms for its new Index, to be reviewed every six months.

In an attempt to examine historical performance of such an index, the authors went about delineating Top 15 stocks based on market capitalization and value traded (turnover) in order to construct the index over a timeline spanning 2006-2011

The index is highly dominated by banking stocks, with seven banks forming part of the index in the first half of 2006 to ten banks in the first half of 2011. The weightage of the banks in the index has increased from 55% in 1H06 to 68% in 1H11, mainly due to increase in the number of banks.

Zain and National Mobile Telecom Co are the two telecom companies that have formed part of the index from 2006 to 2011. Zain, as the incumbent, has been the dominant partner contributing the majority of the sector weight.

The weight of financial services sector in the index has diminishing over the years, from 13% in 1H06 to 1% in 1H11. The participation of other sector in the index has been on a steady decline over the years.


Following the construction of the indices, the report illustrates two methods used to analyze its returns; 1) an equal weighted or Price index methodology, and 2) a market cap weighted methodology. The authors then compared the returns with those of the standard benchmarks. It is interesting to note that the Top 15 index consistently outperformed the price index and the weighted index barring a small diversion in the period July 2007 to June 2008. This lends the case for the Top 15 index from a portfolio management point of view.

Table: Comparison of Returns (%)

On a constant annual growth rate (CAGR) basis for the period January 2006 to June 2011, both the KSE top 15 equal and KSE top 15 market cap indices have outperformed the KSE price and KSE weighted indices on a total return basis. Though the return earned by both top 15 indices has been on the higher side compared to the current Kuwait based indices, their volatility has also been much more than the current indices. On a comparative basis the volatility measured by standard deviation of KSE top 15 equal is at 26% versus that of KSE price index which is at 21%, whereas KSE top 15 market cap has a standard deviation of 26% versus 23% for the KSE weighted index. Based on the above calculation, the new index would provide higher return for investors who are ready to take higher risks.

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About Markaz

Kuwait Financial Centre 'Markaz', with total assets under management of over KD906 million as of June 30, 2011, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.