The ASX winners and losers from the latest S&P index shake-up

S&P announced the big reshuffle to key ASX indices that could see a number of ASX stocks outperform and underperform in the near-term.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Standard and Poor's announced a big reshuffle to the key ASX indices that could see a number of ASX stocks outperform and underperform in the near-term.

The June quarterly rebalance includes a bigger than normal shake-up of the S&P benchmarks as the March rebalance was held over due to the COVID-19 crisis.

History shows us that index inclusions and exclusions tend to have an impact on the share prices of ASX stocks swept up in the changes.

The quarterly ASX anomaly

This seems to be unique to Australian shares and is called the "index effect". This market anomaly could form a basis for some short-term trades for nimble investors.

The analysts at Macquarie Group Ltd (ASX: MQG) found that the stocks to be included in the S&P/ASX 100 (Index:^ATOI) (ASX:XTO) tend to underperform in the weeks before they are added to the index.

However, these stocks after two-weeks from their inclusion and the broker speculates this is due to selling from small cap fund managers.

Many of these funds have mandates that prevent them from owning stocks in the top 100 benchmark and are forced to sell.

Large caps that could outperform

This means the Nextdc Ltd (ASX: NXT) share price and Saracen Mineral Holdings Limited (ASX: SAR) share price could be heading higher soon as they are the latest to be added to the index.

They replace international shopping centre owner UNIBALWEST/IDR UNRESTR (ASX: URW) and miner Whitehaven Coal Ltd (ASX: WHC).

Interestingly, large caps that are dropped from the ASX 100 don't generally come under much selling pressure, added the broker.

Different impact on ASX 200

However, the same can't be said for the S&P/ASX 200 Index (Index:^AXJO).

"S&P/ASX 200 index additions have typically outperformed strongly in the weeks prior to the announcement of the changes," said Macquarie.

"Stock performance has often peaked prior to implementation date. ASX 200 deletions have traditionally underperformed as they are removed."

What this means is that it might be too late to buy ASX shares that are about to become part of the ASX 200 club as the index change comes into effect this Friday.

The ASX 200 stocks that could lag

On the other hand, those getting the boot could underperform from next week.

On that note, the six ASX 200 rejects are the ones to watch. These include aged care company Estia Health Ltd (ASX: EHE), investment platform Hub24 Ltd (ASX: HUB), online lottery group Jumbo Interactive Ltd (ASX: JIN), drug maker Mayne Pharma Group Ltd (ASX: MYX), miner Pilbara Minerals Ltd (ASX: PLS) and wealth manager Pinnacle Investment Management Group Ltd (ASX: PNI).

Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited and Macquarie Group Limited. The Motley Fool Australia has recommended Hub24 Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Magnifying glass on a rising interest rate graph.
Share Market News

Will the RBA finally cut interest rates next week?

Let's see what economists are saying about the central bank's meeting.

Read more »

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors endured a rough Friday to close the trading week today.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Broker Notes

7 ASX All Ords shares elevated to 'strong buy' status in October

The brokers turned bullish on these ASX companies last month.

Read more »

A businessman compares the growth trajectory of property versus shares.
Share Market News

How ASX shares vs. property performed in October

The national home value rose for the 21st consecutive month while the ASX 200 dipped.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

The worst 3 ASX 200 stocks to buy and hold in October unmasked

You would have done well to avoid these three ASX 200 stocks in October.

Read more »

A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently
52-Week Lows

Why is the Woolworths share price at its lowest point since 2020?

We haven't seen Woolies shares this low since COVID.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why AFT, Amcor, Corporate Travel, and Macquarie shares are falling today

These shares are ending the week in the red. But why?

Read more »