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

ASX plans to attract more IPOs don’t go far enough

The challenges with building a dividend portfolio

Where is peak ETF?

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Retirement

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

Shares

Boom, bubble or alarm?

After a stellar 2025 to date for equities, warning signs - from speculative froth to stretched valuations - suggest the market’s calm may be masking deeper fragilities. Strategic rebalancing feels increasingly timely.

Property

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Economy

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Shares

Is the iPhone nearing its Blackberry moment?

Blackberry clung on to the superiority of keyboards at the beginning of the touchscreen era and paid the ultimate price. Could the rise of agentic AI and a new generation of hardware do something similar to Apple?

Fixed interest

Things may finally be turning for the bond market

The bond market is quietly regaining strength. As rate cuts loom and economic growth moderates, high-quality credit and global fixed income present renewed opportunities for investors seeking income and stability. 

Shares

The wisdom of buying absurdly expensive stocks (or not!)

Companies trading at over 10x revenue now account for over 20% of the MSCI World index, levels not seen since the dotcom bubble. Can these shares create lasting value, or are they destined to unravel?

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.