Frequently Asked Questions about the S&P/ASX 200 Index

• The S&P/ASX 200 measures the performance of the 200 largest stocks listed on the ASX.
• Representative, liquid and tradable, it is widely considered Australia’s pre-eminent benchmark index.
• The index is float-adjusted, covering approximately 80% of Australian equity market capitalization.
• Listed companies place immense significance on their membership in the S&P/ASX 200 index. Inclusion in the index generates significant institutional interest for constituents, and proliferates widespread media and buy/sell side analytical coverage.
• Also, most margin lenders and CFD providers also use the S&P/ASX 200 constituent list in determining which stocks are made available for their clients' trading. This adds to the interest and liquidity of the S&P/ASX 200 stocks.

Frequently Asked Questions

1. How are stocks selected for inclusion in this index?

This index includes the largest 200 listed companies based on:
- market capitalisation (no. of issued shares x current share price), and
- public float (shares available for public trading; e.g. excludes shares held by management in escrow)

As a company's market capitalisation and public float increase, its stock is more likely to be included in an S&P/ASX index.

2. Which stocks are currently included in this index?

Standard & Poor's publishes and updates index constituents on its website .

3. Will stocks be taken out of and included into the index on a regular basis?

Yes. Standard & Poor's adjusts its index constituents on a quarterly basis (called quarterly index rebalancing), or earlier if there is a change in the status of an index constituent (e.g. delisted due to takeover, privatisation etc.) or an IPO listing of a new company with a very large market capitalisation. The quarterly dates of announcement are:

1st working day of March
1st working day of June
1st working day of September
1st working day of December

After the annoucement, the changes will be effective in approximately 2 or more weeks' time.

Changes to the index constituents are announced on the Standard & Poor's website .

4. If index inclusion is based on market capitalisation and public float, wouldn't it be possible to predict which stocks will be deleted and added to the index on the quarterly rebalancing?

Yes. Stocks that have fallen drastically are likely to be deleted from the index in which they belonged to. Conversely, stocks that have risen dramatically so much so that its market capitalisation has exceeded the top 200, are likely to be added to the index.

5. How can I use the index as an investor?

First, as mentioned above, you could try to anticipate which stocks will be added or deleted from the index, and act accordingly (i.e. buy or short-sell) before the S&P announcement.

Second, using the index as a benchmark, you could measure and compare the performance of your investment activities. Are you outperforming the index? Or are you underperforming? If you are channelling sufficient time and effort into managing your own share investments, you should outperform the index. If you are not, review your investment techniques, strategy and action plan. Decide if you need to invest in educating yourself to become a better investor. Review what went wrong and what went right. Amend your trading plan and behaviour accordingly. If you are consistently outperforming the index, give yourself a pat on the back. You have done well.

Third, the index is a reasonably good indicator of the general direction of the stockmarket. A nimble short-term trader should recognise a change of sentiment in a timely fashion and change his/her focus accordingly. S&P also has specific indices for the different sectors:

CODE  INDEX
XEJ   S&P ASX 200 Energy --- which stocks are included
XMJ   S&P/ASX 200 Materials --- which stocks are included
XNJ   S&P/ASX 200 Industrials --- which stocks are included
XDJ   S&P/ASX 200 Consumer Discretionary --- which stocks are included
XSJ   S&P/ASX 200 Consumer Staples --- which stocks are included
XHJ   S&P/ASX 200 Health Care --- which stocks are included
XFJ   S&P/ASX 200 Financials --- which stocks are included
XXJ   S&P/ASX 200 Financial-x-Property Trusts --- which stocks are included
XPJ   S&P/ASX 200 Property Trusts --- which stocks are included
XIJ    S&P/ASX 200 Information Technology --- which stocks are included
XTJ   S&P/ASX 200 Telecommunication Services --- which stocks are included
XUJ   S&P/ASX 200 Utilities --- which stocks are included

Written by
Austin Hui, MBA CPA
Senior Investment Analyst

12 January 2007