The S&P Dow Jones Indices has today announced the results of its quarterly rebalance for the Australian stock market, moving a number of big-name companies in and out of various indices.
The entire S&P/ASX index hierarchy was not reviewed this quarter, but only those within the nation’s top 200 companies by market capitalisation.
The most notable change made was the removal of South32 Ltd (ASX: S32) from the S&P/ASX 20 (ASX: XTL) group. South32 was recently spun out of mining behemoth BHP Billiton Limited (ASX: BHP), which is another member of the ASX 20 group, meaning that for a time there has actually been 21 constituents within the group.
Given that South32 didn’t debut as strongly as some analysts were expecting it to, it didn’t carry the market value needed to keep it within the nation’s top 20 stocks.
There was more activity outside of the ASX 20, where Beach Energy Ltd (ASX: BPT) made way for the rampaging Domino’s Pizza Enterprises Ltd. (ASX: DMP) within the S&P/ASX 100 (ASX: XTO) group. Domino’s Pizza has cooked up a remarkable 70% return for investors over the last year thanks to its strong growth locally and internationally and now boasts a market value just under $3 billion.
Meanwhile, there were three changes made to the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) cohort. Making their way into the group were debt collection agency Credit Corp Group Limited (ASX: CCP) as well as real estate investment trusts National Storage REIT (ASX: NSR) and Growthpoint Properties Australia Ltd (ASX: GOZ).
Sundance Energy Australia Ltd (ASX: SEA), STW Communications Group Ltd. (ASX: SGN) and Skilled Group Ltd. (ASX: SKE) will no longer be tracked within the ASX 200 group, which could see some heightened selling activity in the near-future as fund managers adjust their portfolios accordingly.
What does this mean?
Many fund managers and superannuation accounts are restricted from investing in companies outside certain indices (predominantly the ASX 200 or the ASX 300), so whatever changes are made can result in the readjustment of countless portfolios around the country.
While investors can look to take advantage of this they should also be sure to look at the smaller end of the market at companies that few analysts are following. As they grow up and attract more attention from the market, they tend to generate enormous returns for those investors who got in early.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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