Expect to see more tech names joining ASX
Over-concentration is unlikely to be a problem for the Australian Securities Exchange (ASX) All Technology index as it expects technology to become a bigger part of the Australian market which will see more companies join the index.
The All Technology index was launched in February 2020 and currently contained 58 companies, the largest of which was Afterpay at a 17.7% weighting followed by Xero. Shares in Afterpay had risen 253% since the start of the year while Xero shares had risen 69% over the same period.
Asked on a webcast whether this could present a problem as companies grew larger in the future and the weighting increased, Daphne van der Oord, head of Australia and New Zealand at S&P Dow Jones Indices, said she thought the 25% weighting cap was “acceptable” for the index.
This compared to an 8% weighting for the largest company in the ASX 200 which was CSL.
“The index has a 25% single-stock cap which we think provides acceptable diversification and gives the winner enough scope to run for longer,” she said.
“Given the growth in technology, it is likely impetus for future growth will continue and there will be more companies joining the index which will bring further diversification.”
Since inception, the index had risen from 46 companies to 58 with new entrants including buy now, pay later provider Sezzle and battery firm Novonix which had taken the index’s market cap from $110 billion to $143 billion.
She pointed out the sector differed from other ASX indices as it was growth-orientated rather than other sectors such as financials and resources which were more focused on income.
“The Australian market is very income-focused but this sector is growth-orientated and that makes it very distinctive compared to the rest of the market,” she said.
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