Those who argue in favour of diversification as a protection against concentration risk will see the merit in owning an ETF rather than one or two high-profile tech stocks.
The high dispersion in performance between index constituents can be seen in the fact that seven of them have gained at least 30 per cent in 2020 led by Pushpay Holdings, up 85 per cent, and Afterpay, up 62 per cent. However, nine index constituents have declined by at least 30 per cent this year.
The S&P/ASX All Technology Index is weighted by float-adjusted market capitalisation, subject to a single constituent weight cap of 25 per cent of the total index weight.
Securities included in the index must, as of the rebalancing reference date, have a minimum three-month average float-adjusted market capitalisation of $120 million.
Also, stocks require a minimum relative liquidity of 30 per cent and if any stock’s relative liquidity drops below half of the 30 per cent threshold, it becomes ineligible and is removed at the next quarterly rebalancing.
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