[VIDEO ANALYSIS] What does the ASX quarterly rebalance mean?

William O'Loughlin:

Okay, so question two is from Lisa, from New South Wales "Hi, guys! Just wondering if you can clarify this announcement. S&P Dow Jones indices announces March 2017 courtly rebalanced of the S&P/ASX indices. What does this mean?"

 

Shannon Rivkin:

It's a good question, Lisa, because we haven't really talked about this in the past. Think about this ... the stock market in Australia, usually the main index referred to is ASX 200, there are multiple indices within the ASX, as it's 50 different sectors like the industrials index, things like this. And what they do is they include largest companies under that subset. So the ASX 200, for example - the 200 largest companies. It's a little bit more complicated than that, because they take into account things like free floats, for example Crown Casino got a 50% free float, because James Packer owns roughly 50%.

 

 

So, what's available to trade is usually factored into that.  But what, of course happens is that as a company grows they might not one day be in ASX 200. If it becomes   big enough to that it is within the 200 eventually that will be included in the new index and then quarterly the S&P will do that rebalance. And it look its important because ... a lot of managed funds, within their mandate  they wouldn't be to buy so the stocks are out of certain indices. So, obviously it can be a big positive for a company that has seen growth to be included in some of these, it would obviously will start to appear on the radar for a lot of fund managers out there out there.

 

 

So, it is worth paying attention to all things being equal, inclusion in a new indice is a positive.

 

William O'Loughlin:

Yes, so probably just add that inclusion in a higher index than it was currently in. So if it moves from ASX 300 to ASX 200, that's good news from 200 to 100 etc.

 

Shannon Rivkin:

And vice versa, of course

 

Willam O'Loughlin

Right.

 

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