There’re a handful of ASX stocks including the Afterpay Ltd (ASX: APT) share price that could see buying interest next week.
This is when Standard’s & Poor (S&P) announces the changes to key stock benchmarks, including the S&P/ASX 200 Index (Index:^AXJO).
ASX investors should care. A number of studies have shown that new ASX entrants to stock indices tend to outperform in the weeks before and the months after their inclusion.
The opposite happens to ASX stocks that get bumped from these indices.
Rise of passive investments
One reason for this is the growth of index investing. Investors have been increasingly buying into exchange traded funds (ETFs) and other passive investing strategies that hug an index.
Their popularity is driven by the belief that the vast majority of active fund managers cannot beat the index over the longer term. Passive investments charge much lower fees than active managers.
As stocks are added into an index, these ETFs and passive managers have to buy the stock. By the same token, the opposite happens when an ASX stock is dropped.
ASX winners and losers
Another reason behind the performance trend is the fact that new index members tend to be moving from strength to strength. Hence their inclusion. Those that fall to the wayside have often been plagued by challenges.
This of course is unless an ASX stock is dropping out of a larger cap index into a smaller cap index.
Thus, if you can identify these ASX shares ahead of time, you could squeeze a couple of extra percentage points of performance from your share portfolio.
On this happy note, Morgan Stanley believes there are three stocks that stand out ahead of the S&P changes on December 11.
Changes to the S&P large cap indices
The broker is convinced that Afterpay will added to the S&P/ASX 50 as it swaps places with the Vicinity Centres (ASX: VCX) share price. The changeover is a sign of the COVID‐19 times when online shopping is booming at the expense of shopping malls.
Meanwhile, the Mineral Resources Limited (ASX: MIN) share price could keep outperforming into early next year. The mineral processing and contracting services group is tipped to gain membership to the S&P/ASX 100 [XTO] (INDEXASX: XTO), according to Morgan Stanley.
The stock that is making way for the MIN share price is the Flight Centre Travel Group Ltd (ASX: FLT) share price. No one needs a travel agent when international borders are shut.
ASX stocks to be added and dumped from the ASX 200
Finally, the Reece Ltd (ASX: REH) share price could also find favour in the near-term as it’s well placed to be added to the ASX 200.
Stocks that may be tossed out are the Avita Therapeutics Inc (ASX: AVH) share price, Cooper Energy Ltd. (ASX: COE) share price, Western Areas Ltd (ASX: WSA) share price and GWA Group Ltd (ASX: GWA) share price.
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Brendon Lau owns shares of Reece Australia Limited. Connect with me on Twitter @brenlau.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited, Kogan.com ltd, Pointsbet Holdings Ltd, and Tyro Payments. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Avita Medical Limited, Flight Centre Travel Group Limited, Kogan.com ltd, and Pointsbet Holdings 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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