Dow Jones launches local index

Dow Jones Indexes has launched an Australian index which covers 95 per cent of the Australian share market.

Dow Jones Indexes has launched an Australian index which covers 95 per cent of the Australian share market.

Primarily developed as a benchmark, the Dow Jones Australia Index will operate in competition with the All Ordinaries Index (AOI). (The AOI is currently being restructured and a new version will be implemented on April 3).

Dow’s index takes the 1300 shares listed on the Australian Stock Exchange (ASX) and narrows these down. On Monday, it consisted of 198 stocks.

Shares are excluded if they have been listed for less than six months, are illiquid, are owned to a large degree by a single entity or are foreign issues, non-ordinary equity issues and investment trusts.

According to Andrew Sinclair, the Dow Jones Indices director for Asia Pacific, the index comes with three sub-indices or “building blocks”, allowing investors to also measure segments of the market.

The sub indices are the Large Cap Index (which accounts for 70 per cent of the market), the Mid Cap (making up 20 per cent) and the Small Cap Index (10 per cent).

Sinclair believes the index will be a far more efficient benchmark than the AOI and other indices being structured by the ASX which contain fixed numbers of compa-nies

However, Gervase Greene, the ASX’s media relations manager, says: “The AOI is the benchmark for the Australian economy. It is extremely well recognised and ac-cepted and an extremely representative snap shot of the Australian share market.”

The ASX is in the throes of restructuring the AOI, expanding it to 500 companies. It will be fully weighted by market capitalisation and will account for about 99 per cent of total market value.

In order to address the issue of performance or benchmarking, the ASX will also introduce six Benchmark Indices specifically designed to meet the needs of fund managers — the ASX20, ASX50, ASX100, SX200 and ASX300.