To start with, S&P ASX 200 (XJO) is an index or a composite which comprises of largest 200 stocks as per the free float-adjusted market capitalization and listed on ASX. It is also considered as the benchmark index for the Australian stock markets at large.
The index which came into existence in the year 2000, typically measures the performance of the 200 largest stocks which are listed on the Australian stock exchange. The index is well diversified with the major sectors such as Materials (mining), energy, technology, healthcare and financials. This index is useful for varied purposes such as the benchmarking of fund portfolios, Index based derivatives, and index funds. The S&P ASX 200 is maintained by the Standard & Poor’s. The index represented around 82% of the free float market capitalization of the stocks listed on the Australian stock exchange as at March 2017.
For a company’s stocks to be a constituent of this index, the stock first must be listed on the Australian stock exchange via a primary or a secondary listing. Only common stock and preferred stocks are eligible to be listed on this index. The stocks which are closely held or have a very less amount of liquidity are typically not included in the Index. This is because the Index should be designed in a manner so that it is tradeable and thus is considered suitable by the large institutional fund managers and investors.
The Index is reshuffled on account of rebalancing which is done on a quarterly basis, taking into the consideration the various eligibility norms prescribed. Although the Index prima facie looks to be diversified, however as at November 30, 2018, the largest ten stocks in the index accounted for over 44.80% of the index.
An investor can gain the exposure in all the ASX 200 constituent stocks by just investing in the Index per se, rather than investing in the individual stocks. This leads to a cost-efficient and a diversified way of investing, as the index is composite and transaction costs are substantially reduced when investing in an index rather than individual stocks. There is a list of investable products which has several ETF’s which are traded on certain exchanges and are linked to the subject Index.
As per the recent fact sheet published by the Standard & Poor’s on 30th November 2018, the XJO was trading at a price to earnings multiple of 15.67x while the forward P/E is at 14.74x. Moreover, the Index traded at a price-to-book ratio of 1.65 times as on the same day. It has produced a dividend yield of 4.49% per annum. The Index had a market capitalization of $ 1.65 Trillion as on 13 Dec. 2018
The index has provided negative returns of around 6.65% for the year till date on account of the global volatility and the rising bond yields, thanks to the hawkish stance adopted by the major central banks around the world.
All in all, this is a primary index that mirrors the performance of the market at large.
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