Ann: S&P DJI Announces June 2024 Quarterly Rebalance, page-16

Of course it is important and relevant because it means LTR does not have to be bought in for funds tracking the ASX100 or weighs less in funds portfolio re-balancing...and the price declines of the last few days was probably reflecting this change.

Less money flows always a disadvantage and the not good news is that it only serves to help the sell side.

As explained by *:
Rebalancing indices

Exact methodology for inclusion in certain indexes and rebalancing is quite complex considering a range of factors including market cap and liquidity and can also be found on the S&P Global website.

However, it is worth noting just how often they are rebalanced. While some are done quarterly, others are done semi-annually or annually.

The S&P/ASX 20, S&P/ASX 50, S&P/ASX 100, S&P/ASX 200, S&P/ASX All Australian 50, and S&P/ASX All Australian 200 indices are all rebalanced quarterly.

The rebalancing happens on market close on the third Friday of March, June, September, and December.

“On these days, due to the rebalance, the turnover in terms of dollar value traded on ASX and globally is vastly above normal,” Hannah said.

“If a company is coming in or out of the ASX 200, it will affect the share price.”

The market is informed of the upcoming changes one week in advance, or two weeks in the case of the September change.

The AXS 300 is re-balanced semi-annually, effective after the market close on the third Friday of March and September.

The All ordinaries is re-balanced only once annually in the March quarter, which means a significant number of additions and removals.
Winds of change

The indices change and evolve as do companies change and evolve. Companies that grow can find themselves added to indices, while ones which shrink removed.

Hannah said if companies are added to an index or multiple ones it presents a range of opportunities and if removed the repercussions can be significant. Companies can find themselves added or removed from ETFs and funds tracking indices.

“Rebalances present massive liquidity events in markets, as all ETF providers are looking to trade their portfolio to match the updated indices,” he said.

He said ETF providers will aim to trade the changes on the close of the rebalance day.

“However, if the position to be traded is so large that it cannot it be filled on the actual re-balance day, then the fund manager will be required to trade over multiple days,” he said.

“The implication is that if a share is coming in or out of an index, it might see sustained buying or selling pressure which can impact the share price.”