Having reviewed every company on the ASX200 list, I found that only three meet the Golden Triangle (GT) criterion. This raises an important question: Why would anyone, let alone 58% of Australians, choose to invest in the ASX200? Why don’t more Australians allocate their capital to the S&P 500 instead?
To compare these indices, it is essential to understand what it takes for a company to qualify for each. Without diving into excessive detail, here are the key listing requirements:
ASX200 Requirements:
- Listing Type: The stock must be classified as common or preferred equity on the Australian Securities Exchange (ASX).
- Liquidity: A minimum Relative Liquidity of 50% is required for inclusion in the S&P/ASX 200.
- Market Capitalisation: The company must rank among the top 200 on the ASX after adjusting for freely tradable shares (excluding large entity holdings or recent share issuances).
- Rebalancing Frequency: The ASX rebalances quarterly, meaning stocks enter and exit the index more frequently.
S&P 500 Requirements:
- Listing Type: The index includes 500 of the largest companies traded on the NYSE, Nasdaq, or CBOE.
- Market Capitalisation: Companies must have a float-adjusted market cap of at least USD $20.5 billion.
- Rebalancing Frequency: The S&P 500 evaluates companies over 12 months, so any company removed must wait a full year before being reassessed.
This comparison highlights why the ASX200 is more volatile than the S&P 500. The frequent rebalancing allows companies to enter and exit the ASX200 at a much higher rate, making it a more dynamic but less stable investment vehicle.
The ASX200 and the Golden Triangle
Upon closer inspection of the ASX200, only three of the 200 companies currently meet the GT requirements:
- REA Group Ltd (ASX: REA)
- The Lottery Corporation Ltd (ASX: TLC)
- Ventia Services Group (ASX: VNT) (though VNT has only been trading for a few years, so just outside, but I will still review them.)
This limited pool of high-quality companies further questions the ASX200’s attractiveness as an investment option compared to the S&P 500, which includes some of the world’s largest and most established corporations. So then, why do Australians buy into the ASX200?
Final Thoughts
The most significant component of Australian shares held directly comprises retirees (65 and older) at 71% and pre-retirees (50 to 64) at 59%. This cohort has also received decades of general advice aimed at dividends rather than being educated on the compounding effect of the share price. With the significantly lower share price, higher payout ratio and bonus of franking shares, it is no surprise that the ASX has appealing aspects.
Keep learning and keep investing.
Disclaimer: This article does not constitute financial advice nor a recommendation to invest in the securities listed. The information is intended to be factual only. Past performance is not a reliable indicator of future performance, so as always, do your research and consider financial, legal, and taxation advice before investing.
