While investing you may have come across headlines like “The All Ords is up 1% today” or “Markets tumble as the All Ordinaries falls”. But what are these statements about?

The All Ordinaries index, also known as the “All Ords”, is one of Australia's most recognised stock market indicators. It’s often used to gauge how the market is performing, but many investors aren’t sure how it works or why it matters.

Is it a good measure of market trends? How does it compare to other indices? And should investors pay attention to its daily movements?

Understanding the All-Ordinaries index can help investors interpret price movements, long-term market trends, and historical performance. This article breaks down what it is, how it works, and its role in the Australian market.

What is the All Ordinaries?

The All Ordinaries index is a widely used measure of the Australian stock market. It tracks the performance of the largest companies on the Australian Securities Exchange (ASX) , providing a broad snapshot of market trends. Investors, analysts, and financial media often use it as a key benchmark for overall market performance.

When was it established?

Created in 1980, the All Ords was Australia’s first major stock market index. Before its introduction, there were smaller, less comprehensive indices that didn’t capture the full scope of the market. The All Ords changed that by including the 500 largest companies based on market capitalisation – that’s the total market value of a company’s shares. This makes the index a more useful tool for tracking long-term trends. Over time, it has evolved alongside the market, but its core purpose remains the same: to give investors a comprehensive picture of how the share market is performing.

How is the All Ordinaries calculated?

The All Ords is a market cap weighted index, meaning companies with higher market capitalisation have a greater impact on its movements. This means larger companies will influence the index more than smaller businesses, as their combined current share prices make up a larger portion of the market.

Unlike some indices with a fixed number of companies, the All Ords adjusts over time. It generally includes around 500 companies, but the exact number fluctuates as businesses enter or leave the ASX due to growth, mergers, or delistings. Because of its broad coverage, the All Ords is often compared to more selective indices like the ASX 200 , which tracks only the top 200 companies. The index updates regularly to ensure it reflects the market’s largest players at any given time.

What companies are included in the All Ordinaries?

The All Ordinaries index includes a diverse mix of companies across multiple industries. It features businesses from finance, mining, healthcare, consumer goods, technology, and other sectors. Because the index is based on market capitalisation, the companies change over time as industries grow or decline.

The index originally focused on traditional sectors like mining and banking. However, shifts in the economy have influenced its composition. The rise of technology and healthcare has led to more companies from these industries entering the index, reflecting broader market trends.

For example, Australia’s growing tech sector has seen firms like Xero gain higher rankings in the index. Meanwhile, healthcare giants such as CSL have strengthened their positions as demand for medical innovations increases. These changes highlight how the All Ordinaries index portfolio evolves alongside the market, offering a snapshot of where Australia’s largest companies stand at any given time.

How does the All Ordinaries compare to other indices?

Several Australian stock indices track different segments of the market. The All Ordinaries index provides a broad view, but other indices focus on more specific groups of companies.

• The ASX 200 , as mentioned earlier, includes the top 200 companies by market capitalisation, making it more concentrated in larger, more established businesses. It is often used as a benchmark for leading share market performance.
• The ASX 300 expands on this by adding 100 mid-cap stocks, giving a slightly wider view while still focusing on highly traded companies.
• The All Ords , typically includes around 500 companies, covering a broader portion of the ASX.

Why does this matter for investors?

Different indices serve different purposes. Investors looking at the broader market often refer to the All Ords, while those focused on large-cap stocks may prefer the ASX 200. The ASX 300 sits in between, offering exposure to both large and mid-sized companies.

Because the All Ords includes a mix of business sizes, it may capture price movements across a wider range of industries. Meanwhile, indices like the ASX 200 tend to reflect the performance of Australia’s largest and most actively traded companies.

How is the All Ordinaries used?

As mentioned, the All Ordinaries is used by investors, financial analysts, and fund managers to assess market trends and portfolio performance. It provides a broad measure of how Australian stocks are performing over time.

Benchmarking portfolio performance

• Many investors compare their portfolio’s returns to the All Ordinaries index to see if they’re keeping pace with the market.
• If the index rises while a portfolio stays flat, it may potentially indicate underperformance.

Market sentiment indicator

• The All Ords is often used to gauge overall market conditions.
• A rising index may suggest stronger investor confidence, while a falling index could signal caution or uncertainty.

ETFs and fund performance

• Some exchange-traded funds and managed funds track the All Ordinaries index as their benchmark.
• These funds aim to replicate the index’s performance, offering exposure to a wide range of Australian stocks.

While short-term movements can fluctuate, the index provides insight into historical performance and market direction.

Limitations of the All Ordinaries index

While the All Ordinaries index provides a general market snapshot, it has some limitations to keep in mind. These limitations affect how investors interpret the index and its relevance to their portfolios.

Larger companies dominate movements

• The market cap weighting system means the biggest companies, like BHP and Commonwealth Bank, have the most influence on index movements.
• If a handful of large stocks perform well, the index may rise, even if many smaller companies are struggling.
• This can give a misleading impression of overall market health, especially for investors holding smaller or mid-sized stocks.

Lower liquidity in smaller companies

• The All Ordinaries includes many stocks that are thinly traded, meaning they don’t change hands as frequently as larger stocks.
• Lower liquidity can lead to price volatility, with some stocks experiencing large swings in value due to small trading volumes.
• For investors, this can mean greater difficulty buying or selling shares at desired prices without affecting the stock’s value.

Heavy concentration in key sectors

• Mining, banking, and healthcare stocks dominate the All Ordinaries index, meaning their performance has an outsized impact.
• If one of these sectors experiences a downturn , the index may fall even if other industries remain strong.
• Investors with a diversified portfolio may see different results from the index, making it a less accurate benchmark for their holdings.

Example: the impact of mining stocks

Mining companies like BHP and Rio Tinto play a significant role in the index due to their large market capitalisation. If iron ore prices drop, these stocks may decline, pulling the index lower – even if banks, healthcare, and tech stocks are performing well. This can be misleading for investors who track the All Ordinaries but hold stocks in sectors with less influence on the index.

These factors highlight why the All Ordinaries index isn’t always a perfect reflection of the broader stock market. While it offers useful insights, investors should consider its composition and weighting when using it as a performance benchmark.

Historical performance trends

The All Ordinaries index has seen significant ups and downs over the years. While short-term volatility is common, the index has generally grown over the long term.

Major market movements

• 1987 crash – The All Ordinaries dropped sharply during the global stock market crash, with panic selling driving prices lower.
• Dot-com bubble (early 2000s) – Many tech stocks soared before crashing, dragging the index down as speculative investments collapsed.
• Global Financial Crisis (2008-09) – The index saw one of its largest declines as financial markets faced uncertainty and widespread losses.
• COVID-19 crash (2020) – A sudden market drop occurred as global economies shut down, but a strong recovery followed in the months ahead.

How long-term investors interpret these trends

Market downturns are a normal part of investing. As seen in past events like the Global Financial Crisis and the COVID-19 crash, sharp declines can happen suddenly. However, history shows that the All Ordinaries index has recovered over time, reflecting the market’s resilience.

Short-term price movements can be unpredictable, often reacting to economic news, global events, or investor sentiment. While daily fluctuations may seem significant, they don’t always indicate long-term market direction. Many investors focus on broader trends rather than reacting to short-term changes.

Remember that past performance doesn’t guarantee future results. While the index has historically trended upward over long periods, future movements will depend on economic conditions, market cycles, and company performance.

What else should investors keep in mind?

The All Ordinaries index offers a broad view of market trends in Australia. However, it shouldn’t be the sole metric for decision-making as it has limitations, including sector concentration and the dominance of larger companies.

Investors tracking the leading share market performance may also want to consider other indices. The ASX 200 focuses on the largest companies, while sector-specific indices provide insights into particular industries. The right benchmark depends on your investing focus and portfolio composition.

Ultimately, investment decisions should align with your goals, risk tolerance , and strategy. Rather than reacting to daily index changes, you may benefit from assessing your long-term financial objectives.

Happy investing!