Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 582

How ETFs and indexes cope with company delistings

Share markets are ever changing. Companies come, and companies go.

But what happens to share market indexes, and the exchange traded funds (ETFs) that use them as performance benchmarks, when a company is removed because of a merger or acquisition?


Source: ASX.com.au

One doesn’t have to look too hard to find some recent, high-profile examples of company delistings from the Australian Securities Exchange (ASX).

After more than 60 years on the ASX, the building products company CSR that started life in 1855 as the Colonial Sugar Refining Company was delisted in July following a $4.3 billion takeover by French construction group Saint-Gobain.

The construction materials company Boral (which listed in 1946 as Bitumen and Oil Refineries (Australia) Limited) also left the ASX in July after its $1.5 billion acquisition by Seven Group. Likewise, the bauxite mining and aluminium refineries investment group Alumina delisted from the ASX following its $3.4 billion takeover by U.S. giant Alcoa.

All up there have been 67 ASX delistings so far in 2024, including other high-profile removals such as concrete group Adbri (sold for $2.1 billion to Irish group CRH in July), and fruit and vegetables company Costa Group (sold for $1.5 billion to U.S. private equity group Paine Schwartz in February).

Understanding index construction

All of the companies mentioned above had been included in various ASX indexes, such as the All Ordinaries Index and S&P/ASX 300 Index, based on their market capitalisation.

Share market indexes are structured to track the broad performance of markets and specific sectors, typically by tracking the share price returns of the companies that have been included in the index.

For example, the S&P/ASX 300 Index tracks the returns of the top 300 ASX companies based on their market capitalisation. In turn, the Vanguard Australian Shares Index ETF (VAS) uses the S&P/ASX 300 Index as its performance benchmark.

So, what happens to indexes and ETFs when companies effectively vanish from a share market?

Index rebalancing

Indexes are rebalanced on a regular basis as part of scheduled reviews to ensure benchmarks stay up to date and continue to accurately reflect their purpose.

ETFs and unlisted managed funds tracking an index will adjust their own portfolio holdings in tandem with any changes made to the benchmark index.

On the ASX, scheduled rebalancing changes typically take effect after the market close on the third Friday of March, June, September, and December.

The S&P/ASX 300 is rebalanced semi-annually, effective after the market close on the third Friday of March and September.

Eligible stocks are considered for index inclusion based on their rank relative to the stated quota of securities for each index.

But company deletions also can occur between index rebalancing dates due to acquisitions, mergers and spin-offs or due to suspension and bankruptcies. The decision to remove a stock from an index rests with the index provider and will be made once there is sufficient evidence that a transaction will be completed.

Company delistings will typically trigger an intra-rebalancing process if an index level is comprised of a fixed number of companies. But not all indexes are based on a fixed count.

The S&P/ASX 300 and All Ordinaries are not fixed count indices, so intra-rebalancing additions are only made when a replacement added to the S&P/ASX 200 (or a higher index) is not a constituent of the S&P/ASX 300 and All Ordinaries.

Index additions are made according to various criteria as laid out in their respective methodologies. For the S&P/ASX300, market capitalisation, free float and liquidity are some of the criteria considered, whereas for the All Ordinaries Index, there is no liquidity screen or minimum float requirement.

The reference date used to determine an ad-hoc index replacement is determined on a case-by-case basis and taken closer to the time of the event that triggered the vacancy.

More information on how indexes are rebalanced on the ASX can be found in S&P/ASX Australian Indices Methodology.

 

Tony Kaye is a Senior Personal Finance writer at Vanguard Australia, a sponsor of Firstlinks. This article is for general information purposes only and does not consider the circumstances of any individual.

For more articles and papers from Vanguard Investments Australia, please click here.

 

RELATED ARTICLES

The challenges with building a dividend portfolio

Where is peak ETF?

An intriguing theory explaining persistent LIC discounts

banner

Most viewed in recent weeks

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

Latest Updates

Investment strategies

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Investment strategies

Don't let Trump derail your wealth creation plans

If you want to build wealth over the long-term, trying to guess the stock market's next move is generally a bad idea. In a month where this might be more tempting than ever, here is what you should focus on instead.

Economics

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Investment strategies

Will China's EV boom end in tears?

China's EV dominance is reshaping global auto markets - but with soaring tariffs, overcapacity, and rising scrutiny, the industry’s meteoric rise may face a turbulent road ahead. Can China maintain its lead - or will it stall?

Investment strategies

REITs: a haven in a Trumpian world?

Equity markets have been lashed by Trump's tariff policies, yet REITs have outperformed. Not only are they largely unaffected by tariffs, but they offer a unique combination of growth, sound fundamentals, and value.

Shares

Why Europe is back on the global investor map

European equities are surging ahead of the U.S this year, driven by strong earnings, undervaluation, and fiscal stimulus. With quality founder-led firms and a strengthening Euro, Europe may be the next global investment hotspot.

Chalmers' disingenuous budget claims

The Treasurer often touts a $207 billion improvement in Australia's financial position. A deeper look at the numbers reveals something less impressive, caused far more by commodity price surprises than policy.

Fixed interest

Duration: Friend or foe in a defensive allocation?

Duration is back. After years in the doghouse, shifting markets and higher yields are restoring its role as a reliable diversifier and income source - offering defensive strength in today’s uncertain environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.