Although the Telstra (ASX: TLS) share price only gained 1.4% today it was the S&P/ASX 200’s (ASX: XJO) leading share in terms of real points contribution to the index’s performance today.
This is true even though the Telstra share price performance today was a long way behind (in percentage terms) market leaders such as Treasury Wine Estates Ltd (ASX: TWE), Costa Group (ASX: CGC) or Domino’s Pizza Enterprises Ltd (ASX: DMP) that all climbed more than 2.8%.
This is because Telstra’s large size or index weighting means it contributes much more than smaller companies to the overall performance of the index.
For example even though the index fell 20.7 points today, Telstra’s positive share price performance alone actually contributed more than 2 positive index points, which is more than Costa or Domino’s.
For mum and dad investors or professional fund managers in Australia whether or not you have exposure to the big bank stocks will play a large part in whether or not you outperform the index.
For example the big 4 banks including Commonwealth Bank of Australia (ASX: CBA) make up around a quarter of the index. Therefore if their share prices are rising and you don’t own them you’re likely to underperform, with vice versa true if the big banks are falling on the back of bad news such as The Royal Commission findings in 2018.
Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO, Telstra Limited, and Treasury Wine Estates Limited. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited. 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 Scott Phillips.