Most information on the ASX200 can be found on the S&P website: Standard & Poor's - Indices S&P/ASX 200
There is also a factsheet: Standard & Poor's - S&P/ASX 200 Factsheet (PDF)
You should also read up on the Index Methodology - although much of the detail is very technical. It does help to have a basic understanding of how an index is created.
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S&P/ASX 200. Upon its introduction in April 2000, the S&P/ASX 200 replaced the All Ordinaries index as the primary gauge for the Australian equity market. The S&P/ASX 200 measures the performance of the 200 largest index-eligible stocks listed on the ASX by float-adjusted market capitalization. Representative, liquid and tradable, it is widely considered Australia’s preeminent benchmark index. The index is float-adjusted, covering approximately 80% of Australian equity market capitalization. Listed companies place immense significance on their membership in the S&P/ASX 200 index. Inclusion in the index generates significant institutional interest for constituents, and proliferates widespread media and buy/sell side analytical coverage.
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Simply put - the index is weighted to various shares based on market capitalisation.
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Investable Weight Factor (IWF). A stock’s weight in an index is determined by the float-adjusted market capitalization of the stock. This is a function of current index shares, the latest available stock price and the IWF. The IWF represents the float-adjusted portion of a stock’s equity capital. Therefore any strategic holdings that are classified as either corporate, private or government holdings reduce the IWF which, in turn, results in a reduction in the float-adjusted market capital. Shares owned by founders, directors of the company, trusts, venture capitalists and other companies are also excluded. These are also deemed strategic holders, and are considered long-term holders of a stock’s equity. Any strategic shareholdings that are
greater than 5% of total issued shares are excluded from the relevant float.
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Index tracking ETFs like STW will use the same weightings - and will buy and sell shares to maintain those weightings as the index is re-weighted (Quarterly I think - unless something else happens in the meantime, such as a merger between two companies within the index)
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Intra-Quarter Additions. Between rebalancing dates, an index addition is generally made only if a vacancy is created by an index deletion. This rule applies to the S&P/ASX 200 and all related indices that sit higher within the index hierarchy. Therefore, it is not applicable to the S&P/ASX 300 and the All Ordinaries index. Index additions are made according to market size and liquidity. An initial public offering (IPO) is added to the index only when an appropriate vacancy occurs and is subject to proven liquidity for at least two months. An exception may be made for extraordinary large offerings where sizeable trading volumes justify index inclusion.
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Sim'
This is a general comment only and does not constitute advice. Before making financial decisions you should seek advice from a professional adviser, who can take into account your specific circumstances and investment goals.
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