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On 21 February 2020, ASX in partnership with S&P Dow Jones Indices (S&PDJI) announced the launch of new technology index S&P/ASX All Technology Index. The index commenced operations on 24 February 2020. It includes ASX-listed companies that operate in the high-growth technology sector.
The index evaluates the performance of technology companies that are listed on ASX, as defined by their inclusion in the Information Technology sector according to GICS and some specified GICS categories as listed among eligible benchmarks. The index is weighted by float-adjusted market capitalisation, subject to a single constituent weight cap of 25% of the total index weight.
The index on the day of its debut on ASX dropped significantly by 4.12% and closed at 2,018.6. Most of the technology companies on ASX could not perform well on S&P/ASX All Technology
Index, majorly influenced by the fear of Coronavirus, which has spread beyond the Chinese border.
Big players from this sector like WiseTech, Afterpay, Altium, Appen, Xero closed in red.
- Shares of WiseTech dropped 2.334% from its previous close and settled at $18.830.
- Afterpay’s shares closed at $36.97, down 5.181% from its last close.
- Altium’s shares settled at $32.87, ~ 4.5% below its previous close.
- Appen dropped by ~5.62% and closed at $23.85.
- Xero’s shares tumbled 4.353% and settled at $83.500.
As the S&P/ASX All Technology Index has gone live, investors would have the opportunity to get access to some of the growing technology companies from Australia as well as from across the globe. According to Dominic Stevens, the ASX Managing Director and CEO, the All Tech Index will improve the profile as well as knowledge of technology companies listed in Australia and enhance the scope for investors.
The All Tech Index recognises the critical mass of technology-oriented organisations and gives investors with a scope to see how the sector is tracking and provide them with a standard to measure its performance.
The new index S&P/ASX All Technology Index at the launch would comprise of 46 companies, and the combined market cap of the index would be ahead of $100 billion. Overall, there are above 200 technology companies that are listed on ASX valued at ~ $115 billion. The top ten companies from this sector include:
- Xero Limited (ASX: XRO)
- Computershare Limited (ASX: CPU)
- Afterpay Limited (ASX: APT)
- REA Group Limited (ASX: REA)
- Altium Limited (ASX: ALU)
- com Limited (ASX: CAR)
- WiseTech Global Limited (ASX: WTC)
- Link Administration Holdings Limited (ASX: LNK)
- NEXTDC Limited (ASX: NXT)
- Appen Limited (ASX: APX)
For a company to be eligible for being included in the index the conditions require that the company should have a minimum float-adjusted market cap, daily traded value along with liquidity thresholds. Further, the constitution of the index may change post the quarterly rebalances.
Mr Stevens also highlighted that many companies that are listed in the S&P/ASX All Technology Index began as small capitalisation companies and have transformed into billion-dollar ones.
Key benefits of S&P/ASX All Technology Index:
- By reaching beyond the GICS classified Information Technology Sector, the index contains other innovative technology related industries like health care technology as well as businesses operating online marketplaces.
- The index incorporates businesses that could not have advanced to the S&P/ASX 300, giving earlier entrance to these smaller businesses that may have better prospects for expansion.
- The index focuses on an exceptional, underrepresented divisions of the Australian equity market. It brings out distinct investment attributes compared to major Australian equity sectors like real estate, financials as well as natural resources.
- Even though the sector is quite broad, it includes investability characteristics that are created to make it suitable for use in index-based investment products.
Need for the launch of S&P/ASX All Technology Index:
In recent years, technology sector on ASX has seen a huge growth in the number of companies as well as market cap. The Australian market is mostly covered by banks and natural resources, and there is considerable demand for an index that describes the Australian technology sector in a broad, yet accurate manner.
Also, the technology sector assesses a unique, innovative portion of the market that constitutes a small part of the wider Australian stock space.
Designing of the index:
In order to completely capture technology-driven companies in the country, the scope of the All Tech Index has been extended ahead of the classifications provided by the GICS Information Technology Sector. The index includes other innovative technology related industries like health care technology as well as organisations running online marketplaces that are categorised in other GICS Sectors.
The companies making their debut on ASX can also be a part of the new index on a quarterly basis to allow instant access to these businesses.
The index is created to provide a comprehensive picture of technology-related companies that are listed and traded on the ASX. Further, it will also address investability needs necessary to help constitution of index-based financial products. Consequently, it defines an investable universe of technology-related businesses on the ASX and can be utilised to assist index-linked investment products.
Operation of the index:
The index would be rebalanced on a quarterly basis. It would be effective after the close of markets on the third Friday of March, June, September and December on a regular basis every year.
Foreign companies which are listed on ASX would be treated in a similar manner as in other ASX indices.
There is no cap on the no of businesses to be included in the index. All ASX listed qualified businesses would be incorporated in the quarter once they meet the criteria set out for the purpose. However, there is a restriction of 25% on any one index component.
