What would you get if you carved out the 100 smallest companies in the S&P/ASX 200 into their own index? You’d have the S&P/ASX 200 Ex-S&P/ASX 100 Index. Alternatively, you’d have also segmented the largest 100 companies in the S&P/ASX Small Ordinaries.

Companies listed on the ASX are grouped into broad market, large-, mid- and small-cap segments; these segments are represented by S&P DJI’s suite of S&P/ASX Indices, including the S&P/ASX 50, S&P/ASX 100, S&P/ASX 200, S&P/ASX 300, S&P/ASX MidCap 50 and the S&P/ASX Small Ordinaries. However, there is less awareness of the S&P/ASX 200 Ex-S&P/ASX 100 Index, which is gaining traction as a more liquid “big brother” to the S&P/ASX Small Ordinaries.

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More Meaningful Representation of “Larger” Small-Cap Companies

In terms of the number of constituents, the bottom half of the S&P/ASX 200 currently represents less than 10% of its index weight. Meanwhile, the top half of the S&P/ASX Small Ordinaries amounts to nearly 80% of its index weight.

The S&P/ASX 200 Ex-S&P/ASX 100 Index measures the 100 larger small-cap constituents, with added representation compared to the broader small-cap index. For example, while the top 10 companies in the S&P/ASX 200 Ex-S&P/ASX 100 Index and the S&P/ASX Small Ordinaries are the same, in the S&P/ASX 200 Ex-S&P/ASX 100 Index they comprised 19.29% of the index weight compared to 14.87% in the broader small-cap index, as of Q2 2024.

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Improved Sector Diversification outside the Top 100

It’s well known that the big banks and large miners represent significant index weights within the S&P/ASX 200. In fact, the Financials and Materials sectors alone comprise over 50% of Australia’s flagship large-cap index.

Because it removes the top 100 companies, the S&P/ASX 200 Ex-S&P/ASX 100 Index has significantly less weight in Financials and has more representation to companies within the Consumer Discretionary, Energy and Information Technology sectors. As expected, sector weights for the S&P/ASX 200 Ex-S&P/ASX 100 Index are similar to the S&P/ASX Small Ordinaries, but with slightly more representation to the Consumer Discretionary and Energy sectors and less representation in Information Technology companies.

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Large Caps Have Driven Recent Market Performance

In terms of risk/return characteristics, sector weights and tracking error, the S&P/ASX 200 Ex-S&P/ASX 100 Index aligns closely to the S&P/ASX Small Ordinaries.  Australian large caps have outperformed small caps YTD and over the one-year period (see Exhibit 4). Consequently, the S&P/ASX 200 Ex-S&P/ASX 100 Index has slightly outperformed the S&P/ASX Small Ordinaries. Conversely, in markets where small caps lead performance, we would expect the broader S&P/ASX Small Ordinaries to outperform.

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More Liquidity to Be Found in the “Larger” Small Caps

While its risk/return characteristics have been closely aligned with the S&P/ASX Small Ordinaries, the S&P/ASX 200 Ex-S&P/ASX 100 Index has some significant differences in terms of company size and liquidity.

As of June 30, 2024, the total index market cap of the S&P/ASX 200 Ex-100 Index was AUD 190.6 billion, which comprises approximately 78% of the AUD 247.3 billion for the S&P/ASX Small Ordinaries. The average and median sized companies in the S&P/ASX 200 Ex-S&P/ASX 100 Index are 1.5 times and 1.6 times larger than the S&P/ASX Small Ordinaries, while the smallest company is more than 4 times larger.

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Size matters when it comes to liquidity, and constituents in the S&P/ASX 200 Ex-S&P/ASX 100 Index have generally offered better liquidity than the 200-stock small-cap benchmark. For example, over the one-year period ending June 30, 2024, the average and median constituents in the S&P/ASX 200 Ex-S&P/ASX 100 Index traded more than AUD 500 million compared to the S&P/ASX Small Ordinaries. When looking at daily value traded over the three-month period ending June 30, 2024, constituents in the S&P/ASX 200 Ex-S&P/ASX 100 Index traded about 1.5 times more than the broader S&P/ASX Small Ordinaries.¹

Conclusion

The S&P/ASX 200 Ex-S&P/ASX 100 Index provides market participants with a measurement of the top-end of the Australian small-cap segment and has had a similar historical risk/return profile as the more well-known S&P/ASX Small Ordinaries. The S&P/ASX 200 Ex-S&P/ASX 100 Index can be seen as a “larger” small-cap index, offering half the constituents as the S&P/ASX Small Ordinaries but with a significantly improved liquidity profile historically.

¹ Source: Factset, using median and average daily value traded for each index constituent as of June 28, 2024 (last trading day of June).

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