Every quarter, the S&P Dow Jones reviews all of its Australian indices, including the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), and rebalances them based primarily on the relative market capitalisation of each company.
The review gives investors the opportunity to examine the relative performance of companies over the given quarter. For instance, companies which have performed strongly over the period can often find themselves climbing into a slightly more prestigious group while others that have performed poorly can slip into lower ranked indices.
The S&P Dow Jones released its March quarterly rebalance on Friday. While the changes will not take place until after close of trading on Friday March 21, there were certainly some interesting movements.
While we can expect lots of movement in the lower indices, it is much more uncommon that we see companies slip from the S&P/ASX 20 (Index: ^ATLI). Despite a strong run over the last three months, Newcrest Mining Limited (ASX: NCM), has fallen out of the nation’s top 20 companies (ranked by market capitalisation) and has been replaced by Insurance Australia Group Limited (ASX: IAG) with a market cap of $12.7 billion.
Here are some of the other big moves that you should be aware of:
- REA Group Limited (ASX: REA) burst into the ASX 100. Since mid-December the stock has climbed from around $36 to today’s price of $51.50 while broker Bank of America Merrill Lynch believes it could climb as high as $100.
- Bega Cheese Ltd (ASX: BGA) broke into the ASX 200, along with Ainsworth Game Technology Limited (ASX: AGI), while Ausdrill Limited (ASX: ASL) and Silver Lake Resources Limited (ASX: SLR) were removed.
- After listing on the ASX late last year, Ozforex Group Ltd (ASX: OFX), Pact Group Holdings Ltd (ASX: PGH) and Veda Group Ltd (ASX: VED) also made it into the top 200 while Dick Smith Holdings Ltd (ASX: DSH) entered into the ASX 300.
Climbing into a higher index can be very beneficial for companies given that higher indices tend to receive greater media and analyst attention. On the other hand, it is worth also keeping your eye on the lower indices, or companies that have slipped in, as they could become underappreciated or (even better for you) undervalued.