The ASX winners and losers from the latest S&P index shake-up

S&P announced the big reshuffle to key ASX indices that could see a number of ASX stocks outperform and underperform in the near-term.

Standard and Poor's announced a big reshuffle to the key ASX indices that could see a number of ASX stocks outperform and underperform in the near-term.

The June quarterly rebalance includes a bigger than normal shake-up of the S&P benchmarks as the March rebalance was held over due to the COVID-19 crisis.

History shows us that index inclusions and exclusions tend to have an impact on the share prices of ASX stocks swept up in the changes.

The quarterly ASX anomaly

This seems to be unique to Australian shares and is called the "index effect". This market anomaly could form a basis for some short-term trades for nimble investors.

The analysts at Macquarie Group Ltd (ASX: MQG) found that the stocks to be included in the S&P/ASX 100 (Index:^ATOI) (ASX:XTO) tend to underperform in the weeks before they are added to the index.

However, these stocks after two-weeks from their inclusion and the broker speculates this is due to selling from small cap fund managers.

Many of these funds have mandates that prevent them from owning stocks in the top 100 benchmark and are forced to sell.

Large caps that could outperform

This means the Nextdc Ltd (ASX: NXT) share price and Saracen Mineral Holdings Limited (ASX: SAR) share price could be heading higher soon as they are the latest to be added to the index.

They replace international shopping centre owner UNIBALWEST/IDR UNRESTR (ASX: URW) and miner Whitehaven Coal Ltd (ASX: WHC).

Interestingly, large caps that are dropped from the ASX 100 don't generally come under much selling pressure, added the broker.

Different impact on ASX 200

However, the same can't be said for the S&P/ASX 200 Index (Index:^AXJO).

"S&P/ASX 200 index additions have typically outperformed strongly in the weeks prior to the announcement of the changes," said Macquarie.

"Stock performance has often peaked prior to implementation date. ASX 200 deletions have traditionally underperformed as they are removed."

What this means is that it might be too late to buy ASX shares that are about to become part of the ASX 200 club as the index change comes into effect this Friday.

The ASX 200 stocks that could lag

On the other hand, those getting the boot could underperform from next week.

On that note, the six ASX 200 rejects are the ones to watch. These include aged care company Estia Health Ltd (ASX: EHE), investment platform Hub24 Ltd (ASX: HUB), online lottery group Jumbo Interactive Ltd (ASX: JIN), drug maker Mayne Pharma Group Ltd (ASX: MYX), miner Pilbara Minerals Ltd (ASX: PLS) and wealth manager Pinnacle Investment Management Group Ltd (ASX: PNI).

Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited and Macquarie Group Limited. The Motley Fool Australia has recommended Hub24 Ltd. 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.

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