Monitoring performance

If you follow movements in the sharemarket, or you own a share investment, you’ve probably heard of the S&P/ASX 300 Index. You may also have read about fund managers outperforming their various ‘benchmark indices’.

What is an index?

An index measures the change in value of a particular group of investments over time. For example, the S&P/ASX All Ordinaries Price Index, the headline index accounting for approximately 95% of the Australian sharemarket, is a measure of the price of the shares of the major companies listed on the ASX.

The other popular Australian index is the S&P/ASX All Ordinaries Accumulation Index. This index measures the total return of the share price movements and dividends (assuming these dividends were reinvested to buy more shares). As dividends are an important feature of a sharemarket investment, the Accumulation Index is a much better gauge of medium- to long-term total performance.

The price and accumulation indices measure the performance of the same companies and record this performance in ‘points’.

Benchmark indices

Over time, the S&P/ASX indices have been used as a key tool for the Australian investment community. The All Ordinaries Index is an umbrella index, with six ASX Benchmarking Indices beneath it. The S&P/ASX All Ordinaries Index comprises the largest 500 stocks by average market capitalisation. Its main purpose is to measure the performance of the market. Fund managers will choose an index for their fund based on how closely the index matches their own stock selection. They will then use this index as a ‘benchmark’ or performance standard. Some examples of Perpetual’s benchmark indices are listed below.

Perpetual’s benchmark indices