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The S&P/ASX 200 Index (XJO)

What is the S&P/ASX200?

The year 2000 saw the launch of the S&P/ASX 200. The S&P/ASX 200 is commonly thought of as a list of the top 200 Australian companies. More correctly, it is an index tracked by Standard and Poor’s which is recognised as the primary investable benchmark in Australia. What does this mean?

Only companies that are large enough and that trade with enough liquidity are suitable for institutional buying. These are the companies included in the index. Since the included companies are large, the constituents of the list make up roughly 80% of the total Australian market capitalisation.

How is the Index Weighted?

Indexes have different weightings. Some give equal exposure to all companies regardless of their size, others put more emphasis on larger constituents – which is weighting an index. The S&P/ASX 200 is a float-adjusted market capitalization index which is a mouthful to say. What does this mean?

First, the companies are float-adjusted. Despite a company having a large amount of shares, much of them could be tied up in corporate, private or government holdings which are not available for trading. This includes insiders, venture capitalists, trusts, and others that hold 5% or more of total shares. After removing the inaccessible shares, we have the float. Next, the float is multiplied by the share price for its weight in the index.

Examples of Index Weighting

To demonstrate float-adjusted market cap weighting, we will use two companies – Wesfarmers and Paperlinx.

  • Wesfarmers has, as of time of writing, 1.16 billion shares. The float is slightly smaller at 1.14 billion. The float multiplied by the price of $30.71 gives us a value of over $35 billion dollars.
  • Paperlinx has 603.58 million total shares with a float-adjusted size of 589.79 million. While this company has half the amount of shares, it is worth far less than Wesfarmers. The float is multiplied by the share price of 7.9 cents for a value of $46.6 million dollars.

In the S&P/ASX 200 index, Wesfarmers will be given a weight over 750 times that of Paperlinx.

2000 Was the Year of Change

The same year that the S&P/ASX 200 was introduced, the formerly used benchmark – All Ordinaries – underwent some changes. The All Ordinaries index would now include 500 companies representing roughly 95% of the market capitalisation, but there were no liquidity requirements to have index inclusion. While the All Ordinaries may no longer be the most commonly used benchmark for the ASX, having been replaced by the top 200, it is still used as a broad-based market indicator.

S&P/ASX 200 Facts

  • The largest company (currently BHP) makes up 12.44% of the index
  • The top 10 components of the list make up 52.34% of the index
  • The adjusted market capitalization of the index is over 1 trillion dollars
  • From August 2006 to August 2011, the ASX 200 delivered 0.85% annualized returns
  • Financials and property sectors make up 31% of the index
  • Materials has the second biggest representation making up a 26.5% component of the index
  • Information technology has the smallest sector representation of only 0.6% of the index
  • The S&P/ASX Accumulation 200 index is similar to the ASX 200 except it reinvests dividends. It is also known as the S&P/ASX 200 Total Return Index.