The ASX is where you can get rich quickly if you know where to put your money. For that, having a benchmark to assess the market’s overall performance is crucial. All Ords is the perfect tool that allows investors to do just that. Calculated initially in 1980, it is one of the oldest share indexes in the country. Investors all over Australia utilize the data available on All Ords to help gauge the performance of their investments and make rational financial decisions accordingly.
This article will spill the beans on All Ords, from the inclusion requirements to classification standards and much more. So, ensure you read till the end to learn important details about this tool and how it can benefit your investments.
All Ords Overview
The All Ords Index ( also known as “Kangaroos” in slang ) is a stock index comprising common shares from the Australian Stock Exchange. It serves as a benchmark index for determining the performance of the entire stock market. Being market-weighted, it includes 500 of the biggest companies by market capitalization in the country. Even though its importance has decreased significantly with the introduction of new indices, All Ords still remains an essential part of the finance sector.
Index Inclusion Requirement
Companies must meet certain criteria to be included in the All Ords index. They should have a market value of at least 0.2 percent of all the firms listed on the ASX and a minimum market cap of 40 million. Another important requirement that must be fulfilled is an average turnover of at least 0.5 percent of quoted shares per month. A committee from Standard & Poor’s (S&P) and the Australian Security Exchange selects the constituents to be included in the index. Listed Investment Companies (LICs) and Exchange-traded funds are not included.
The market value-weighted index, or capitalization-weighted index, is the one in which each participant is weighted according to their market cap. The larger the market cap, the greater its effect on the index and vice versa. In All Ords, the top 500 companies by market cap are used to create a metric to assess the performance of the entire market.
Rebalancing of the Index
The ASX All Ords index portfolio is rebalanced at the end of every month to ensure that it comprises only those companies that meet the criteria for inclusion. A firm is removed from the index if its market cap drops less than the required amount, and another immediately takes its place. The index is updated when a business adds, removes, or has its capital reconstructed during the month.
All Ords Index uses the Global Industry Classification Standard (GICS) to classify the constituents. According to this system, all companies are divided into 11 economic sectors, 24 industry groups, 68 industries, and then a further 157 sub-industries. The 11 economic sectors are finance, materials, industrials, energy, telecommunication services, and many more. The fundamental aim of using such a classification methodology is to create a diversified portfolio, making it easier for investors, financial analysts, and economists to compare competitors in the same industry.
How is it calculated?
The index is based upon the aggregate market value of a variety of companies listed on the ASX. The total number of shares multiplied by the current price of a single share gives the market cap of a company. The All Ord index is simply the sum of all the market values of its constituents. It currently stands at about 7,000 points, up from the initial base value of 500.0 points when it first began operation in 1980.
ASX 200 Index vs. All Ordinaries Index
The ASX 200 represents the performance of the top 200 stocks listed on the Stock Exchange. At the same time, the All Ords Index measures the share prices of the top 500 companies in Australia according to market capitalization. All Ords account for about 90% of the entire value of the stock exchange, far more than the ASX 200. The former index, therefore, provides a broader view of the country’s stock market but is heavily influenced by the market caps of the companies.
Companies on the All Ords Index
According to market value, the largest company on ASX All Ords is Commonwealth Bank (ASX: CBA), with a capital of $141 billion and a weighted average of 6.74%. It is followed by CSL Limited (ASX: CSL), which operates in the healthcare sector and has a market cap of $125 billion. BHP Group Limited (ASX: BHP), Westpac Banking Corp (ASX: WBC), and National Aust. Bank (ASX: NAB) all have a market cap of $114 billion, $87 billion, and $72 billion, respectively.
All Ords is a crucial tool for investors around the world as it provides them with a consolidated view of how the Australian Stock Market is performing. The index’s movement and overall performance offer a wealth of information about the nation’s economy as well.
That was all about this financial metric. To read more about business, the stock market, and investing, head to our website, The Australia Time.