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

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

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.