As a stockbroker and a shareholder I need to constantly ‘measure’ the performance of individual investments as well as the general market and the easiest way to do that is by monitoring the movements of various indexes. The ASX S&P 200 index and ASX sector subindices are the main and most effective tools we use. There are others like the VIX or volatility index, the SFE futures 200 index, as well as foreign indexes like the Dow Jones but I’ll explain these in more detail in the next blog.
We use the ASX S&P 200 as a live barometer of what is happening to the value of the market today, and also as a quantitative measure of how the market has performed over a given period of time. The index itself measures the movement in the value of the market based on changes in the capitalisation of the 200 constituents as their share prices change. These 200 stocks account for around 78% of the entire market value. The weight assigned to each company in the index is proportional to that company’s capitalisation or size, with larger companies being assigned a greater portfolio weighting and therefore having a greater impact on index values. Basically what that means is a 1% fall in the share price of Telstra with a market capitalisation of $57billion will have a far greater impact on the ASX200 then a 1% fall in say IINet capped at $750million. If we look at the performance for 2012 we can see that the index started the year at 4056 and closed on 31st December 2012 at 4648, a rise of 14.6%. This is especially important for fund managers who benchmark the performance of their portfolio against the performance of the S&P200. Our estimates of where the index will close on a future date, say in six months or one year, gives our clients a clear picture of how bullish or bearish we are over those given timeframes.
While the S&P ASX200 is an important measure of the overall sharemarket, the subindices are a useful measure of how the various industry sectors have performed and how they compare with each other. The numbers are very telling. The best performing sector, Pharmaceuticals and Biotech, was up by a very attractive 61.3% while the worst performing sector, Capital Goods, was down 7.3%.
So in 2012 if an investor chose to hold a portfolio of stocks with a bias to resource and energy companies we could expect that the capital return from their investments would have been below that of the general market and significantly below that of an investor with a defensive bias who would have greater exposure to telecommunications and financial stocks. This is reflective of the discussions I have been having with clients over the last 18 months. With interest rates dropping there has been a significant rotation out of term deposits into equities. Most of these clients are not looking for cyclical or trading stocks, they want an attractive fully franked dividend that’s higher than the rate offered on cash or cash products. The RBA Board Statement from Tuesday confirmed this view. They observed that ‘savers are starting to shift portfolios towards assets offering higher expected returns’.
For shareholders, or anyone taking an interest in the market, it’s important to look at moves in the headline numbers from the ASX S&P200, and it’s equally important to focus some attention on the subindices.
For more information please contact me directly at email@example.com
Vivian Rounsley Investment Advisor
Representative of Commonwealth Securities Limited AFSL 238814 This material is general information and is not intended to be taken as a recommendation to buy, hold or sell any particular stock or investment. This information has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. This information has been prepared and approved by Commonwealth Securities Limited, ABN 60 067 254 399, AFSL 238814. Commonwealth Securities Limited is a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 60067254399 AFSL 234945
- What does 2021 have in store for ATO audit activity? - 26 November 2020
- Over 30,000 people have invested in crowd sourced funding equity raising - 13 August 2019
- The 7 things your SMSF clients are judging you on - 13 June 2019