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).
Replacing them will be rare-earths mining company Lynas Corporation Ltd (ASX: LYC), lithium miner Pilbara Minerals Ltd (ASX: PLS), and software-as-a-service company WiseTech Global Ltd (ASX: WTC).
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.
What now?
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.
