In morning trade the Japara Healthcare Ltd (ASX: JHC) share price is in the red after being dumped from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) at its next quarterly rebalance.
According to an announcement by S&P Dow Jones Indices, Japara and fellow aged care provider Regis Healthcare Ltd (ASX: REG) will be removed from the benchmark index at its next rebalance on December 18 along with FlexiGroup Limited (ASX: FXL).
Why does it rebalance the index?
Once a quarter S&P Dow Jones rebalances its indices in order to accurately reflect changes in its constituent’s market capitalisation and liquidity.
To be included in the S&P/ASX 200 a company’s average daily market capitalisation for the previous six months must be considered institutionally investable and meet the minimum benchmark size.
Furthermore, liquidity must be adequate and its public float needs to meet a minimum requirement.
Due to the shares of Lynas, Pilbara Minerals, and WiseTech rallying strongly this year, they have earned a spot in the index at the expense of Japara, Regis, and Flexigroup.
As some fund managers are restricted from owning shares that are not included in the S&P/ASX 200, there is a chance that the three leaving the index could come under a spot of selling pressure. In light of this, investors may want to keep away from these shares for the next week or two.
Whereas the new entrants could receive a boost as they come onto the radar of these fund managers at long last.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. 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.