On March 1, S&P Dow Jones announced a rebalancing of its ASX (Australian Securities Exchange) indices. There were some notable changes with the REA Group was added to the S&P/ASX 300 while TradeMe was added to the S&P/ASX 200.
At the same time, the once dominant traditional media player, Fairfax, was removed from the prestigious S&P/ASX 100, PMP Limited (a traditional print player) was dropped from the ASX All Ordinaries, and APN News and Media (another traditional print player) was dropped from the S&P/ASX All Australian 200 index.
So why are these changes occurring?
Firstly the online companies are becoming more valuable. The REA Group now has a market cap of US$3.4 billion (yes BILLION). Other Australian online businesses are also valued highly with Seek (lead in jobs) valued at US$3.4 billion and CarSales (the leader in motoring) valued at US$2.1 billion.
Secondly, the traditional players, who have missed the digital boat, have slipped backwards. Fairfax is now valued at just US$1.3 billion. Even the business it once owned, Trade Me, is now worth US$1.6 billion!
I will always remember the words of a former Senior Manager at News Limited when they were finally convinced to buy into realestate.com.au (now the REA Group) in 2001 for just $2.25m in cash and $8m in contra advertising. He said to me “we will take the equity stake but it is not a real business”. How times have changed!
Simon Baker is the former CEO and MD of the REA Group from 2001 – 2008.
Overview of Indexes (Courtesy of the ASX Site)
All Ordinaries Index
The All Ordinaries Index (XAO) is Australia’s premier market indicator. The index represents the 500 largest companies listed on the ASX. Market capitalisation is the only eligibility requirement of constituents, as liquidity is not considered, with the exception of foreign domiciled companies.
S&P/ASX 100 Index
The S&P/ASX 100 Index (XTO) is Australia’s premier large capitalisation equity index, it is comprised of 100 stocks selected by the S&P Australian Index Committee. The index provides a benchmark for large active managers whose emphasis is on having a portfolio with strong liquidity. It essentially covers large-cap and mid-cap stocks evaluated for liquidity and size.
S&P/ASX 200 Index
The S&P/ASX 200 Index (XJO) is recognised as the investable benchmark for the Australian equity market, it addresses the needs of investment managers to benchmark against a portfolio characterised by sufficient size and liquidity. The S&P/ASX 200 is comprised of the S&P/ASX 100 plus an additional 100 stocks. It forms the basis for the S&P/ASX 200 Index Future and Options and the SPDR S&P/ASX 200 Exchange Traded Fund (ETF).
S&P/ASX 300 Index
The S&P/ASX 300 Index (XKO) provides additional depth and coverage to the S&P/ASX 200 whilst maintaining strict liquidity guidelines. It provides up to an additional 100 small-cap stocks to the S&P/ASX 200. Companies removed from the index are replaced when a suitable candidate is available, or at the quarterly review. It forms the basis for the Vanuard Australian Shares Index 300 Exchange Traded Fund (ETF).
S&P/ASX All Australian 200 Index
The S&P/ASX All Australian 200 Index (XAT) is similar to the S&P/ASX All Australian 50 with the number of constituents being the sole point of difference. The S&P/ASX All Australian 200 is a broad market index comprising of the top 200 Australian domiciled companies by capitalisation. Similar to the S&P/ASX All Australian 50, foreign domicile and foreign exempt companies listed on ASX are ineligible for index inclusion with index constituents being selected primarily on the basis of their capitalisation and ability to meet minimum liquidity requirements. The S&P/ASX All Australian 200 allows investors to focus on a purely Australian investment universe and construct portfolios with a distinct allocation to Australian equities.