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.

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.

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.

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.

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.
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).More By This Author:Time, Trust And Trading S&P Momentum Indices Leading The PackA Strong Start for the Newly Launched S&P 500 High Dividend Growth Index