Corporate Travel Management Ltd (ASX: CTD) and uranium miner Boss Energy Ltd (ASX: BOE) are among six ASX shares that will be dropped from the S&P/ASX 200 Index (ASX: XJO) in the December rebalance.
Corporate Travel Management shares have been suspended since 26 August after the company revealed accounting irregularities in its UK operations.
Auditors have since discovered incorrect revenue recognition of GBP 45.4 million and other irregularities.
S&P Dow Jones Indices announced its next quarterly rebalance, effective 22 December, after the market close on Friday.
Car parts retailer Bapcor Ltd (ASX: BAP) and poultry producer and food processor Inghams Group Ltd (ASX: ING) will also drop out.
Alternative asset and property fund manager, HMC Capital Ltd (ASX: HMC) will also go.
Intellectual property services firm, IPH Ltd (ASX: IPH), rounds out the list of ASX 200 departees.
You can find out which shares will enter the ASX 200 index on 22 December here.
What is an index rebalance?
Every three months, S&P Dow Jones Indices reviews and updates Australia's leading market indices.
Rebalances ensure the indices accurately rank the nation's largest listed organisations by market capitalisation.
Indices provide a consistent way to measure and monitor the market's performance over the long term.
The ASX 200 is the benchmark index for the Australian share market.
However, other indices, like the S&P/ASX All Ordinaries Index (ASX: XAO) and S&P/ASX 300 Index (ASX: XKO), are also very important.
Why is it bad for these ASX 200 shares?
Membership in the ASX 200 indicates a company's strong market standing.
Being dropped in a rebalance can signal potential problems, market headwinds, or a declining stock valuation.
As shown below, all six of these ASX 200 shares have fallen over the past year (except the frozen Corporate Travel Management shares).
Leaving the ASX 200 can have tangible effects on a share's price. This is because it triggers passive investment exits.
Many exchange-traded funds (ETFs) and managed funds are designed to track the performance of the ASX 200.
This means that every quarter, fund managers must buy the shares that enter the ASX 200 and sell those that leave.
This can result in extra trading activity around the rebalance date, which may influence a share's value.
Rebalances have greater significance than ever before due to the rising popularity of ASX ETFs.
The latest Betashares data shows Australians ploughed a record $5.99 billion into ASX ETFs in October.
A record $321.7 billion is now invested in more than 400 ETFs on the market today.
ASX ETFs are a passive, diversified investment option that many investors perceive as convenient and lower risk.
They are a basket of shares that investors can buy in one trade for one brokerage fee, with low ongoing management fees thereafter.
