Why is the ASX All Ordinaries (ASX:XAO) struggling lately?

We have BHP and plummeting iron ore prices to blame for most of the ASX All Ordinaries’ disappointing performance over the past month.

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It certainly hasn’t been a pleasant month or so for the All Ordinaries Index (ASX: XAO). Since the All Ords last peaked at 7,902 points on 13 August, the ASX’s oldest share market index has shed around 4% of its value. Much of this loss has occurred over just the past few trading days. The All Ords has now lost around 2.3% since just last Thursday.

So what’s going on here?

Well, the All Ordinaries is an ASX index that covers 500 of the largest companies on the ASX boards. But (like most indexes), it is also weighted by market capitalisation. That means the largest companies have a bigger weighting and impact on the All Ords than the smaller ones.

How is the ASX All Ordinaries constructed?

As it stands today, the 10 largest ASX shares in the All Ords are as follows (as of 31 August):

  1. Commonwealth Bank of Australia (ASX: CBA)
  2. CSL Limited (ASX: CSL)
  3. BHP Group Ltd (ASX: BHP)
  4. Westpac Banking Corp (ASX: WBC)
  5. National Australia Bank Ltd. (ASX: NAB)
  6. Australia and New Zealand Banking Group Ltd (ASX: ANZ)
  7. Wesfarmers Ltd (ASX: WES)
  8. Fortescue Metals Group Limited (ASX: FMG)
  9. Macquarie Group Ltd (ASX: MQG)
  10. Woolworths Group Ltd (ASX: WOW)

So you can already see that the major ASX banks, BHP and CSL are the heavy hitters of the ASX All Ords.

So let’s see how these ASX shares have fared since 13 August.

Since that date, CBA shares have lost a little more than 2.5% of their value. Westpac is down by 3.1%, whilst NAB has lost a far smaller 0.8%. ANZ takes the cake with a steep loss of roughly 7.7%.

CSL bucks the trend. This healthcare company has managed a healthy increase over the period in question, gaining a robust 3.33% since 13 August and today (so far).

BHP share price lets the team down

BHP takes the cake though. It has lost a very nasty 29.3% since 13 August. As such, we have the BHP share price to blame for most of the ASX All Ordinaries’ disappointing performance over the past month and a bit.

Why this steep fall for BHP shares? Well, the iron ore price has collapsed over the past few months. Iron ore is today trading back at roughly US$100 a tonne. But as recently as May, it was at record highs of more than US$230 a tonne. This steep fall in the pricing of this commodity clearly damages the profitability prospects of the ASX’s iron ore miners, of which BHP is the largest.

However, we are also seemingly seeing history repeating itself.

Many an investor would have heard the old investing proverb ‘Sell in May and go away’. It’s the idea that the months following May are almost always a bad time to have your money in the share market. So if you ‘sell in May and go away,’ you can avoid this seasonal slump.

Well, a recent article from MarcusToday puts some credibility to this theory. According to the article, the All Ords has averaged a return of roughly 6.5% for the 6 months before May ever since 1982. For the 6 months following May, the All Ords has instead returned an average of just 1.5% since 1982.

The All Ord’s performance over the past month or two has certainly fed into these averages.

Even so, that’s cold comfort for ASX All Ords investors today. So just blame BHP and falling iron ore prices!

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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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