What Is All Ordinaries Accumulation Index?

  • Jan 13, 2019 AEDT
  • Team Kalkine
What Is All Ordinaries Accumulation Index?

The All Ordinaries Accumulation Index, also known as The All Ordinaries Total Return Index (XAOA), is Australia’s stock market index comprising largest 500 stocks which account for approximately 90% of the total market capitalization. The All Ordinaries Accumulation Index is used to measure complete investment performance and in comparing the performance of professionally managed funds. The index was established on 31 December 1979.

The All Ordinaries Index (XAO) is a market-weighted index, which considers changes in the market capitalization of each company as its constituent criteria. This, in turn, is calculated by multiplying the number of quoted shares by their market price, including a respective weighting factor.  The index amounts to over 95 % of share values traded on the ASX

The All Ordinaries Accumulation Index (XAOA), on the other hand, measures the trend of the price movements one step further to incorporate the dividends paid, so a benchmark for total investment performance (before tax) can be calculated. Over time, the Accumulation Index will rise faster (or fall less) than the equivalent share price index because dividends paid by companies are considered. XAOA assumes that dividends are reinvested on the ex-date and so measures both growth and dividend income.

Investors are concerned about the total return while investing in asset classes, and not just on the capital gains or losses. The total return will include the dividend returns as well since investors get a stream of dividends with the capital gain or loss if the share is held for a certain period. So, ideally, the total return on investment is being calculated by the All Ordinaries Accumulation Index. The companies in the index are chosen because of their market capitalization and their liquidity on the exchange. Hence, larger companies have a higher weighting in the index. A share price slump in any one of these companies has a more significant influence on the index.

One of the main reasons SMSF trustees invest in shares is to gain income from dividends. So, while the price index may be useful for tracking day-to-day price movements in the stock market, the accumulation index arguably provides a better overall indication of the investment return.

The index acts as a guide to broader market direction on any day. Investors and super fund members are more concerned about the individual share prices of the companies they have in the portfolio. Many investment managers and advisers use a different index, instead of All Ordinaries Accumulation Index. All Ordinaries Accumulation Index includes dividends payments, sometimes it may not reflect the real picture in terms of the returns, since it may look more impressive than it is. However, some analysts may prefer S & P ASX 200 Index because it covers the 200 biggest companies.

An accumulation index might be a good guide If the earnings of the investors are reinvested back in the market instead of spending. All Ordinaries Index may be a better measure of returns since it gives an idea about the performance of the capital as compared to the market.

Due to lesser popularity among traders, XAOA index is not quoted frequently daily. Instead, ASX releases daily data on S&P/ASX 200 Net Total Return (XNT), which stands at A$57,071.7, down by 0.36% at the close of trading session on 11 November 2019.


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