What might leaving the ASX 100 mean for Harvey Norman shares?

Is losing your ASX 100 status a big deal?

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Earlier this month, index provider S&P Global released its latest blueprint for rebalancing the indexes that cover ASX shares. While most people were focusing on the widely-followed S&P/ASX 200 Index (ASX: XJO), we also got some news that affects Harvey Norman Holdings Limited (ASX: HVN) shares.

It's the ASX 200 changes that normally spark the most interest whenever S&P Global undertakes its quarterly rebalances. Come next week, the latest changes will see the likes of Brainchip Holdings Ltd (ASX: BRN), Abacus Storage King (ASX: ASK), Syrah Resources Ltd (ASX: SYR) and Lake Resources N.L. (ASX: LKE) kicked out of the ASX 200.

They will make way for Data#3 Limited (ASX: DTL), Ramelius Resources Ltd (ASX: RMS), Genesis Minerals Ltd (ASX: GMD) and Weebit Nano Ltd (ASX: WBT).

But let's talk about Harvey Norman shares.

Harvey Norman shares to lose place in ASX 100 index

Harvey Norman is a card-carrying member of the ASX 200 and has been for a long time. The famous electronics and furniture retailer is also a member of the far less discussed S&P/ASX 100 Index (ASX: XTO). But not for too much longer.

In its notice for the upcoming September rebalancing, S&P Global also confirmed that Harvey Norman shares will be kicked out of the ASX 100 Index come Monday 18 September.

It will be the only stock to be removed from this index. Its replacement in the ASX 100 will be lithium stock Liontown Resources Ltd (ASX: LTR).

The reasoning for this is likely simple. Liontown's current market capitalisation of $6.65 billion now handily exceeds that of Harvey Norman's $5.04 billion. That's largely thanks to Liontown's stunning 145% share price rise over 2023 to date.

Since the ASX 100 is supposed to represent the largest 100 shares on the ASX by market cap, Harvey Norman has simply had to make way for Liontown.

But will this rejig of the index have any meaningful impact on Harvey Norman shares going forward?

Well, it's hard to know for sure. But I doubt it.

Against the ASX 200, does the ASX 100 even matter?

Investors fret about ASX 200 inclusion (or exclusion) because this is the index that has the most potential to make an impact on a company's share price.

For one, the ASX is full of managed funds and exchange-traded funds (ETFs) that track the ASX 200. As such, any fund tracking this index has to hold all of its shares within its portfolio. This means getting an ASX 200 ticket can be great news for a company's share price.

Further, there are lots of fund managers that actively pick stocks but do so out of the ASX 200 index only. So once again, having your company with this index increases its exposure to professional investors, and raises its profile.

However, the ASX 100 index offers none of these benefits. There aren't too many fund managers that I'm aware of that only limit themselves to ASX 100 companies.

Further, the ASX 100 index is not one that too many managed funds or ETFs track. In fact, the last ASX ETF that tracked the ASX 100 was wound up back in 2018.

So I would hazard a guess that Harvey Norman's exit from this index will turn out to be a 'much-ado-about-nothing' kind of scenario. But let's wait and see what happens next week when Harvey Norman shares lose their ASX 100 membership.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Harvey Norman and S&P Global. The Motley Fool Australia has positions in and has recommended Harvey Norman. 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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