Even though the S&P/ASX 200 Index (ASX: XJO) is the most followed ASX index covering the Australian sharemarket, the All Ordinaries Index (ASX: XAO) is actually the oldest one. Established in 1980, the All Ords covers 500 of the ASX's largest companies, as opposed to the more concentrated ASX 200.
This in itself is not uncommon by global standards. Over in the United States, the most tracked index is the S&P 500 Index (INDEXSP: .INX). And there are indexes that cover as many as 5,000 different US companies. You can even get an exchange-traded fund (ETF) on the ASX – the Vanguard U.S. Total Market Share Index ETF (ASX: VTS) – that covers 3,669 of these companies.
There is a plethora of ASX ETFs that cover the ASX 200. One of the most popular is the iShares Core S&P/ASX 200 ETF (ASX: IOZ). There's even one ETF in the Vanguard Australian Shares Index ETF (ASX: VAS) that covers the ASX 300. But, to this writer's knowledge, there is no ASX ETF that tracks the All Ordinaries. None. Zilch. That is rather uncommon, and unusual, one would think.
So why is our oldest index not 'investable'?
The All Ords and liquidity
Well, there's one strong possibility: liquidity. ETFs that track indexes are more effective when the index holds large companies with liquid shares. The smaller a company's market capitalisation becomes, the fewer buyers and sellers it will inevitably have, and thus, the more illiquid its pool of shares will be. The ASX 200 functions quite well in terms of liquidity. But when you throw in another 300 smaller companies, it throws a few spanners into the works.
To illustrate, let's look at one company that is near the bottom of the All Ords pile – Zoono Group Ltd (ASX: ZNO). Zoono has a market cap of $104.3 million. According to ASX data, 220,000 shares traded hands on 23 March. In comparison, 30.9 million Telstra Corporation Ltd (ASX: TLS) shares swapped hands on the same day.
It's probably just not efficient for an index fund to track dozens or hundreds of companies that small. Especially in what is already a relatively small capital market here in Australia. And it can also cause liquidity issues (like dramatic share price moves) if an index fund enters such a small market.
It's most likely a combination of these reasons why we don't see an All Ordinaries ETF. Who knows what the future will hold. But for now, investors will have to either buy their favourite All Ords companies themselves or just stick with the ASX 200 or the ASX 300.
