Since its debut in April 2000, the S&P/ASX Index series has helped to define the Australian equity market. As Australia’s most widely followed market indicator, the S&P/ASX 200 serves as the de-facto measure of the value and performance of the nation’s stock market. In a literal sense, market peaks and valleys are defined by the level of the S&P/ASX 200.
The S&P/ASX 200 paved the way for two decades of index innovation in the Australian market as the S&P/ASX series expanded to measure a wide range of equity market segments, asset classes, and investment themes and strategies.
“Benchmark indices, like the S&P/ASX 200, play a pivotal role for investors, listed companies and other participants in the Australian market as guides to liquidity, quality and performance.” -Dominic Stevens, ASX CEO and Managing Director
A Pillar of Australia’s Investment Infrastructure
Beyond the headline S&P/ASX 200, the S&P/ASX index series plays an integral role in Australia’s investment infrastructure. In fact, in the fund management industry, the S&P/ASX 200 and other S&P/ASX indices serve as the investable universe for actively managed strategies and as ways to benchmark active fund performance. Asset owners, such as superannuation funds, use the S&P/ASX indices to benchmark their domestic portfolios.
With an estimated AUD 309 billion1 of Australian equity funds benchmarked to S&P/ASX indices, the series represents, by far, the most widely used benchmarks for Australian investment funds.
What’s Driving the Continued Growth of Index Investing in Australia
The shift to passive investing has been driven in part by the frequent inability of active managers to outperform their benchmark over the past two decades.
The S&P Indices Versus Active (SPIVA®) Scorecard measures the performance of actively managed funds against their relevant benchmark in equities, A-REITs, and bonds.
Our annual Persistence Scorecard provides additional evidence that it’s hard for top-performing active funds to stay at the top.
The Adoption of Index Investing in Australia is Fueling Market Liquidity
The S&P/ASX index series has played a large role in driving the growth of index investing in Australia. Today, approximately 24% of Australian domestic equity funds under management are invested through index-tracking vehicles.2 A wide range of indices and associated products have been developed to track size and sector segments of the Australian market, and other investment themes and strategies. Including products such as index funds and institutionally managed passive portfolios, S&P DJI estimates that there is approximately AUD 50 billion in assets tracking the various S&P/ASX indices.3 ETFs have proven particularly popular; as of December 2019, domestic equity-focused ETFs listed in Australia had attracted AUD 21.9 billion in investments, of which 68% (AUD 14.7 billion)4 was tied to products based on the S&P/ASX index series.
As indexed assets have grown, we’ve witnessed the growth of a vibrant ecosystem of index-linked trading vehicles. An investor who wants S&P/ASX index exposure can get it through a range of instruments, including ETFs, options, or futures. Products linked to sectors the S&P/ASX 200 represent one section of this ecosystem, with a cumulative traded value of approximately AUD 5 billion in 2019.
With trillions of dollars in reported annual volumes, the S&P/ASX index series offers a deep ecosystem of liquid, tradable products available to support investors as they enter, and exit, the markets. Although the S&P/ASX 200 stands out in particular for its associated liquidity, other S&P/ASX indices have benefited from their connections to the ecosystem.
S&P DJI and the Australian Securities Exchange (ASX) together provide a complete range of Australian market benchmarks.
Operating at the heart of the deep and liquid Australian financial markets, ASX has a proud history as an early and successful adopter of new technology. The exchange continues to focus on embracing innovative solutions for ease of the customer, helping companies grow, creating value for shareholders, and supporting the Australian economy. ASX is an integrated exchange offering listings, trading, clearing, settlement, technical and information services, and other post-trade services.
Examine how the S&P/ASX index series has played an important role in the Australian market over the past two decades.
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1. Source: S&P Dow Jones Indices; Morningstar; Evestment. Data as of Dec 31, 2018.
2. Rainmaker Information. Data as of Sep 30, 2019.
3. Source: S&P Dow Jones Indices. Data as of Dec 31, 2019. Includes enhanced index products.
4. Sources: ASX Investment Products Monthly Update, as of December 2019. Figures include domestic equity and property ETFs.