In an effort to promote the smaller companies on the market, the Irish Stock Exchange has launched a new ISEQ Small Cap Index, which will operate in tandem with the existing ISEQ overall, financial and general indices. The exchange's head of regulation, Mr Brian Healy, said: "The new index will aid in the effective marketing and promotion of smaller capitalisation companies and will contribute to raising their profile among the euro-zone and broader investment communities."

The index includes 54 companies on the Official List and the Developing Companies Market, but excludes exploration companies on the Exploration Securities Market. Smaller Irish companies have suffered from a growing lack of investment interest since the introduction of the euro, with both domestic and overseas institutional investors concentrating on the larger pan-European stocks. Fund managers have increasingly adopted the attitude that, given the advent of the single currency, there is no need for them to have investments in every euro-zone state. This move by the exchange is clearly seen as trying to reverse this trend. The only surprise, according to some Irish fund managers, is that the exchange adopted such a low threshold - a market capitalisation of €400 million (£315,025) or less - in deciding on the composition of the new index. Many fund managers believe that a more realistic threshold would be capitalisation of less than €750 million, with some believing that anything under €1 billion is a small company.

The exchange argues that €400 million represents the market consensus on what constitutes a small cap stock, but that this threshold will be indexed upwards in line with the average growth of the index. The composition of the index will be reviewed twice yearly, with inclusions and exclusions on the basis of market capitalisation being introduced at those dates.

Building materials group Grafton is the single biggest component of the new index, with a 7.43 per cent weighting, followed by Glanbia with 6.84 per cent and First Active with 6.18 per cent. Although its takeover is virtually complete, Clondalkin is included in the initial index with a 7.04 per cent weighting.