Buying shares using ASX performance benchmarks

The Australian Stock Exchange, known as the ASX, is a virtual marketplace where you can buy and sell shares in the top companies in Australia. By buying Australian shares you can become a part-owner of such household names as Woolworths, BHP Billiton, Commonwealth Bank and Westfield.

The ‘All Ordinaries Index’ is a measure of the daily movement of the stock market. This index is calculated by the ASX and measures the market capitalisation of the top 500 shares listed on the exchange. ‘Market capitalisation’ means the number of issued shares for each company multiplied by the latest sale price of the share. When newsreaders or business commentators talk about the ‘market’ being up or down against the previous day, it is movement in the All Ordinaries that they are referring to.

There are a number of other measures of share performance on the ASX. Two of the most important are calculated by Standard and Poor’s, also known as S&P, which is an international financial services company providing financial analysis to stock exchanges around the world.

The S&P ASX 200 and the S&P ASX 20 measure the market capitalisation of the top 200 and top 20 shares on the ASX respectively. Because the market capitalisation can change over time, the make-up of the index can change as well. S&P reviews its indexes on a quarterly basis to work out whether they still contain the top companies. If a company is no longer among the top 200 or top 20, it will be dropped and its replacement included.

The companies making up the S&P ASX 20 are referred to as ‘blue chip shares’. They are the largest 20 Australian Stock Exchange listed companies by market capitalisation. The companies have usually been around for a long time and have a strong history of paying substantial fully franked dividends. They also have a strong history of meeting their forecasts and growing when lesser companies may be struggling.

Because they are such strong companies, their shares can sometimes be expensive to purchase individually and may be out of reach for many investors. Matching the S&P ASX 20 index also means monitoring what ‘weighting’ each of the shares has in the index. For example BHP Billiton and Origin Energy, which are both part of the S&P ASX 20, have vastly different market capitalisations – and therefore have different weighting within the ASX 20 index. However, that weighting may change from day to day according to the price of the shares.

For these reasons, matching the ASX 20 or ASX 200 requires substantial capital and careful management.

Bongiorno engaged BlackRock Investment Management, a professional fund manager, to develop an investment that matches the index, and in such a way that you directly own the shares, rather than owning them through a pooled investment. That way you receive the full benefit of franking credits on the dividends and the performance of your investment is not affected by the purchase and sale decisions of other investors. 

You can either add to the investment or sell a parcel of shares to suit your own tax and personal situation. Also, you can combine this style of investment with carefully controlled borrowing to increase your exposure to the best companies in Australia.

The product is called the BlueChip20 Long Term Equity – Series 3 which mirrors the ASX 20.  You can invest using existing cash and a regular savings plan or via a BT Absolute Investment Loan. 

The BT Absolute Investment Loan has some special features only available to Bongiorno clients, including a discounted interest rate and, most importantly, no risk of margin calls for 10 years.

Ask your Bongiorno adviser about how you can start investing in the top 20 Australian companies.

WARNING This advice has been prepared without taking into account any of your objectives, financial situation or needs.  You must therefore assess whether it is appropriate, in the light of your own individual objectives, financial situation or needs, to act upon this advice.  You should ensure you obtain a Product Disclosure Statement in respect of this product prior to making any decision to acquire this product.