Could incorporating earnings quality and liquidity improve risk/return in Australian small-cap equities?
- Why is the S&P/ASX Small Ordinaries Select being introduced now?
Prior research has demonstrated that profitability matters for small-cap companies in the U.S.1 For example, the S&P SmallCap 600®—which includes earnings eligibility criteria—has outperformed the broader Russell 2000 Index (with lower volatility) for more than 20 years. Our new S&P/ASX Small Ordinaries Select Index extends this phenomenon to Australian equity markets where we have found that a similar effect exists. Simply put, small-cap companies without a track record of generating earnings have performed poorly relative to their profitable peers and have thus been a drag on broad small-cap indices.
The index is a part of the S&P Global SmallCap Select Index Series. In order to be eligible for index inclusion, companies must post two consecutive years of positive earnings per share. As a buffer, companies are dropped from the index after posting two consecutive years of negative earnings. The index is weighted by float market cap and is rebalanced semiannually in March and September.
- What additional indices are offered within the S&P Global SmallCap Select Index Series?
The S&P/ASX Small Ordinaries Select Index follows the same index methodology framework utilized in our S&P Global SmallCap Select Index Series. We currently offer the following regional indices within the S&P Global SmallCap Select Series (see below).
