Some of you must have a range of indices being published on the bulletin and newspapers to help investors in making decisions. While some still cannot wrap their heads around the strange list of numbers that are being read on TV. Whatever the category of people you belong, it is important to understand what it is, how it works and how vital it is for your investment and management decisions. Thus, Ezzat Daniel Nesseim is here to walk you through what the Australian share market All ordinaries is all about. Read on!
What is The All ordinaries index?
Fondly referred to as All Ords, All Ordinaries is the summary of the measure of the largest 500 companies listed on the Australian stock exchange market. It was developed in 1980 and it is the oldest official share price index in Australia.
It is considered as the standard upon which the overall sharemarket performance and trends are determined. In the economic context, it provides information on market trends and serves as an indicator of how people react to situations and events.
When it was established, All Ords was given a base value index of 500 points. this means if the current index value is at 5000 points, Australian Share Market Today in All Ords has grown tenfold.
The All Ords was restructured to include 500 corporations baes on market capitalization on the 3rd of April, 200o. In March 2019, it accounted for 92% of the value of all the shares on the Australian Stock Exchange (ASX). However, with the introduction of a new benchmark index such as ASX 200, this premiered index has lost significant value.
What is The ASX 200?
Many investors prefer to use different indices because it covers 200 largest companies-, unlike all ordinaries 500. As the name suggests, ASX 200 is a benchmark index that tracks the performance of 200 companies based on floated-adjusted market capitalization. The value used to measure the performance of their shares is 313.3.
ASX 200 was started on March 31, 2000, and it is widely referred to as the leading stock exchange index in Australia.
What about the dividend?
The dividend paid to shareholders is not inclusive in the All Ordinaries index. Hence, it is not a complete reflection of all the total returns made by investors during the period. The All Ordinaries Total Return Index (XAOA), unlike all ordinaries, includes all cash dividend reinvested from the ex-dividend dates. It, therefore, provides a complete reflection of the return made on the investment. However, XAOA is not an index used on a daily basis and it is used as a guide for long term investment.
What are the requirements for All-Ordinaries Index Inclusion?
To be a part of the 500 biggest company on all ordinances index, a company must have a market value of at least 0.2 percent. The average turn over rate on ASX must be at least 0.5 percent which must be maintained every month. The average daily market from 6 months will be considered and it must meet the minimum benchmark index set by ASX
The ranking of the members on the Australian Securities Exchange (ASX) is based on market capitalization. All ordinaries have does not consider liquidity.
The above criteria are for inclusion and do not extend to the continuity of the membership. If a company is removed from being a member, the company has to wait until the next rebalance which is conducted annually in March. To ensure that the companies included do not fall below the requirements, updates of the portfolio are conducted every month.
How is the All Ordinaries index calculated?
As stated earlier, the All Ordinaries weighted index is on market capitalization. To calculate the market cap of a company, the total number of shares issued by a company is multiplied by the current share price. This value will now stand as the parameter of the percentage weight of that company.
Investors and wealth planners prefer to use other indexes such as the All Accumulation index. This is because this includes dividends and there are not many stocks to be considered.
“if you are looking to have a good return on your investment, share market indices will provide a good guide.” says, Ezzat Daniel Nesseim, a successful investor with an-depth knowledge of wealth management of leading Australia’s banks.
Compare the longer-term price movements and get a clearer picture of the trends, the economic situation and how your investments are holding up- Ezzat Daniel Nesseim advises.