Index Methodology

Australia has two primary share market indices widely quoted in the media.

The All Ordinaries (All Ords) was created in 1980 and for over 20 years served as Australia's primary share index. For this reason, the All Ordinaries is still widely quoted and used through the investment community.

The S&P/ASX 200 was establish in April 2000 when Standard & Poor's assumed responsibility for the S&P/ASX suite of indices. As at 2014, it is officially regarded as Australia's primary share market index.

Although both indices have near identical levels and are widely quoted in the media, they were created to serve different purposes and are calculated in different ways.

Major Indices

S&P/ASX 200

Code

XJO

Constituents

~200

Criterion

Market Cap + Liquidity

Rebalances

Quarterly

Market Cap.

~77% of the ASX

Index Goal

To establish a highly liquid and tradable index with low turnover. This allows the index to be used as a benchmark for investment returns and for additional S&P/ASX indices to be constructed as benchmarks for varying investment classes and objectives.

Measuring Performance

The S&P/ASX 200 contains a fixed number of constituents. Its numerical value (or level) represents the total weighted market capitalisation of its 200 constituents, relative to a base period. Therefore, a move in the index from 5,000 to 5,500 would indicate the total weighted market capitalisation of its constituents had risen 10%.

Movements in the value (share price) of large companies will have a greater effect on the index level than movements in a small company as there a calculation (weighting) is applied according to a company’s market capitalisation.

Selection Criteria

A security must be listed on the ASX and be an ordinary or preferred equity stock (e.g. no bonds or warrants etc.). Its average daily market capitalisation for the previous six months must be considered institutionally investable and meet a minimum benchmark size. Liquidity must be adequate and its public float (shares not owned by company founders, directors, government agencies etc.) must also meet a minimum requirement.

Note: The above criteria are for inclusion into the index and not for continued membership. As low index turnover is important, a security in the index may on occasions violate one or more of the selection criteria without being removed.

Index Maintenance

Regular maintenance of the S&P/ASX 200 is required to accurately reflect changes in its constituent’s market capitalisation and liquidity.

Quarterly Rebalancing

Changes are implemented on the third Friday of March, June, September and December. Two weeks notice is given on impending changes.

Intra-Quarterly Additions

Generally only occur when there is a vacancy in the index due to a deletion. Two to five business days notice is given.

Intra-Quarterly Deletions

Generally only occur due to mergers, acquisitions and suspensions. Two to five business days notice is given.

All Ordinaries

Code

XAO

Constituents

~500

Criterion

Market Cap only

Rebalances

Annually

Market Cap.

~83% of the ASX

Index Goal

To act as a measure of price performance for the Australian share market as a whole. As it is based entirely on market capitalisation and with no filter for liquidity, it accounts for over 83% (July 2014) of total market value.

Measuring Performance

The All Ordinaries is measured in points and was initially created with a base value of 500, providing a relative measure for the value of the stocks contained within. By comparing the index of the day with the original value of 500 points, it’s possible to get a quick snapshot of current market conditions.

If the index is currently 4000 points, the value of all the companies making up the All Ordinaries has increase eight times since January 1980. As the index accounts for over 98% of total market value, a move from 4000 to 4400 would accurately represent an increase of 10% in the overall value of the Australian share market.

Selection Criteria

The constituents are simply the 500 largest companies listed on the ASX by way of market capitalisation. Unlike the S&P/ASX suite of indices, the All Ordinaries has no liquidity requirement.

The market capitalisation of a company is calculated by multiplying its share price by the number of shares currently held by the public. This value is then used to assign a percentage ‘weight’ for that company. Once all the stocks in an index have been ‘weighted’, the All Ordinaries is calculated by adding together all the ‘weighted’ values, then dividing the sum by the total number of companies that comprise the index.

Index Maintenance

The All Ordinaries index is rebalanced once a year, on the third Friday of March. Two weeks notice is given to the market with the rebalance announcement being made on the first Friday of March.

Unlike all other S&P/ASX indices (with the exception of the S&P/ASX 300), if a company is removed from the All Ordinaries (due to corporate action etc.) a replacement is not added until the next rebalance.

Minor Indices

S&P/ASX 20

Code

XTL

Constituents

~20

Criterion

Market Cap + Liquidity

Rebalances

Quarterly

Market Cap.

~49% of the ASX

Index Goal

To establish a highly liquid and tradable index with low turnover that represents the largest companies listed on the ASX.

Measuring Performance

As per the S&P/ASX 200.

Selection Criteria

As per the S&P/ASX 200.

Index Maintenance

As per the S&P/ASX 200.

S&P/ASX 50

Code

XFL

Constituents

~50

Criterion

Market Cap + Liquidity

Rebalances

Quarterly

Market Cap.

~63% of the ASX

Index Goal

To establish a highly liquid and tradable index with low turnover that represents the large-cap component of the ASX.

Measuring Performance

As per the S&P/ASX 200.

Selection Criteria

As per the S&P/ASX 200.

Index Maintenance

As per the S&P/ASX 200.

S&P/ASX 100

Code

XTO

Constituents

~100

Criterion

Market Cap + Liquidity

Rebalances

Quarterly

Market Cap.

~71% of the ASX

Index Goal

To establish a highly liquid and tradable index with low turnover that contains both large and mid-cap companies.

Measuring Performance

As per the S&P/ASX 200.

Selection Criteria

As per the S&P/ASX 200.

Index Maintenance

As per the S&P/ASX 200.

S&P/ASX 300

Code

XKO

Constituents

~300

Criterion

Market Cap + Liquidity

Rebalances

Biannually

Market Cap.

~79% of the ASX

Index Goal

To provide broader coverage of the market by adding 100 smaller-cap securities to the S&P/ASX 200 index.

Measuring Performance

As per the S&P/ASX 200.

Selection Criteria

As per the S&P/ASX 200.

Index Maintenance

The S&P/ASX 300 index is rebalanced twice a year, on the third Friday of March and September.

Unlike all other S&P/ASX indices, if a company is removed from the S&P/ASX 300 intra-quarter a replacement is not added until the next rebalance.

Component Indices

S&P/ASX Small Ordinaries
Companies in the S&P/ASX 300 but not in the S&P/ASX 100.

S&P/ASX Mid-Small
Companies in the S&P/ASX 300 but not in the S&P/ASX 50.

S&P/ASX MidCap 50
Companies in the S&P/ASX 100 but not in the S&P/ASX 50.

S&P/ASX All Australian 50
The 50 largest Australian securities by float-adjusted market capitalisation.

S&P/ASX All Australian 200
The 200 largest Australian securities by float-adjusted market capitalisation.

 

Additional Reading

S&P Official Methodology - PDF download

History of the Australian Share Market - Timeline, major events and details (by Market Index).


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