Treasure Chest | May 21 2014
This story features REGIS RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: RRL
Standard & Poor’s compiles indices of companies listed on the Australian Securities Exchange ranked predominantly by market capitalisation. The S&P/ASX 20 index thus reflects the “top 20” companies listed in Australia, the S&P/ASX 200 reflects the “top 200” and so on. While “size” is the overriding factor, liquidity is also a consideration, and S&P attempts to compile indices that offer a spread of companies across all sectors to best reflect the Australian economy, hence there is also a subjective element in an index’s constitution.
S&P rebalances its indices on a quarterly basis unless a significant capital event occurs in the interim prompting a more expedient rebalance. On rebalance, companies may be added to or deleted from a particular index. The criteria for inclusion will often result in, for example, the ASX 200 being comprised of slightly more or less than 200 stocks. S&P also compiles equivalent “All Australia” indices which preclude foreign-domiciled companies (eg News Corp).
Fund managers offering “index-tracking” funds, which guarantee the return on a particular index, are obliged to rebalance their own portfolios to match any changes made by S&P. They will thus buy stocks newly included, and sell stocks now deleted. S&P announces upcoming index changes two weeks before the changes are implemented. All things being equal, a stock’s addition/deletion will prompt a rise/fall in share price as fund managers rebalance. However, stock analysts attempt to pre-empt the changes ahead of the announcement, implying relevant stock prices movements can actually occur before the changes are official. Correct predictions thus offer up the opportunity for short-term trading profits. In the longer term, promotion to an index will often put a stock “on the radar” of investors who would not otherwise have considered investment in that stock.
By Greg Peel
The ASX and Standard & Poor's will announce the end result of their Quarterly Index Review on the morning of June 6 which come into effect at the market close on June 20. JP Morgan suggests which stocks may be promoted or relegated as a result of the review.
Given the subjective element to such an exercise, as noted above, JP Morgan only ascribes a high probability to Australand ((ALZ)) moving into the S&P/ASX 200 and Regis Resources ((RRL)) moving out, while Aurora Oil & Gas ((AUT)) will depart after takeover. Aurora will also leave the ASX 200 and Steadfast ((SDF)) is a good chance of moving in.
Transpacific Industries ((TPI)) and Fletcher Building ((FBU)) are medium chances of entering the ASX 100 while Recall Holdings ((REC)) is a low chance of dropping out.
Seek ((SEK)) and WorleyParsons ((WOR)) are a low chance of entering/departing the ASX 50 respectively while there is a low chance of Transurban ((TCL)) reaching the ASX 20, a low chance of Westfield Financial ((WFD)) departing and a low chance of Santos ((STO)) departing.
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For more info SHARE ANALYSIS: ACR - ACRUX LIMITED
For more info SHARE ANALYSIS: AUT - AUTECO MINERALS LIMITED
For more info SHARE ANALYSIS: FBU - FLETCHER BUILDING LIMITED
For more info SHARE ANALYSIS: JHC - JAPARA HEALTHCARE LIMITED
For more info SHARE ANALYSIS: NWH - NRW HOLDINGS LIMITED
For more info SHARE ANALYSIS: RRL - REGIS RESOURCES LIMITED
For more info SHARE ANALYSIS: SDF - STEADFAST GROUP LIMITED
For more info SHARE ANALYSIS: SEK - SEEK LIMITED
For more info SHARE ANALYSIS: STO - SANTOS LIMITED
For more info SHARE ANALYSIS: TCL - TRANSURBAN GROUP LIMITED
For more info SHARE ANALYSIS: WOR - WORLEY LIMITED