The ASX quarterly rebalance takes effect today. Here’s what you need to know

Today is a big day for the S&P/ASX 200 Index (ASX: XJO), the All Ordinaries Index (ASX: XAO), and any other ASX-based index for that matter. That’s because this Monday is the day that Australian share market indexes are rebalanced.

Why is this a big deal? Well, the ASXC 200, the All Ords, and any other index covering ASX shares are ever-changing. Companies grow and shrink and this needs to be taken into account by the indexes that cover them. See, most indexes, including the ASX 200 and the All Ords, are decided using market capitalisation, or company size. Since a company’s market cap is determined by the share price, this is constantly changing.

The ASX’s 43rd-largest company, for example, might be one ASX share one day and another the next. To compensate for the fluctuations of the market, the company that runs most indexes here in Australia – S&P Global – takes stock of the current standing of the market every 3 months, and rebalances its indexes accordingly.

So, today, the effects of the most recent rebalancing go into effect. These are always rather important changes. The myriad of index funds that track the ASX 200, or other indexes, have to mirror whatever changes are made to the indexes they track.

Thus, a rebalancing always sees a large amount of capital shuffled around on the ASX in the weeks leading up to it. Also, some fund managers have mandates which dictate they can only invest in, say, All Ords shares. This has consequences for the markets and many investors too.

All Ords and ASX 200 rebalancing comes into effect

So what changes have just gone into effect today?

Well, it varies. For example, the S&P/ASX 50 Index only has one change. It has swapped out Aurizon Holdings Ltd (ASX: AZJ) for BlueScope Steel Limited (ASX: BSL).

But the All Ordinaries has dozens and dozens of holdings removed today. These have been replaced with dozens and dozens of new shares.

Let’s just quickly run through the changes to the ASX 200 though. So the ASX 200 Index had had 4 ASX shares removed today, replaced with 4 new ones. The companies departing the ASX 200 are Mesoblast Limited (ASX: MSB), Skycity Entertainment Group Limited (ASX: SKC), Spark New Zealand Ltd (ASX: SPK), and Unibail-Rodamco-Westfield (ASX: URW).

In their place, the ASX 200 is welcoming AVZ Minerals Ltd (ASX: AVZ), City Chic Collective Ltd (ASX: CCX), De Grey Mining Limited (ASX: DEG), and Home Consortium Ltd (ASX: HMC).

So that’s what the ‘new’ ASX 200 Index looks like. In reality, these shares are going to be at the bottom of the ASX 200. Thus, they are not going to have meaningful weightings in the new index (likely under 0.05%). But still, these changes do have a meaningful impact on how investing is done on the ASX for the reasons mentioned above.

At the time of writing, the ASX 200 is up by 0.22% so far today, and is sitting at just over 7,310 points.

The post The ASX quarterly rebalance takes effect today. Here’s what you need to know appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Aurizon Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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