Posted: September 03, 2013
The index and the benchmarks
A sampling from around the worldMichael Caplan
(Editor's note: This is the second of two parts. Read Part 1.)
Here are many of the investment world’s most prominent and widely followed benchmarks (and keep in mind that this listing is only a sampling; index compilers typically create broad families of benchmarks based on their overall indexing philosophies and practices):
- Standard & Poor’s Composite Index of 500 Stocks (S&P 500® Index): The S&P 500 is a broad-based index of the average performance of 500 widely held US stocks. Many people believe that the S&P 500 includes the 500 largest stocks on the New York Stock Exchange. Not true: Rather, it includes the stocks of companies that are or have been leaders in their respective industries and that are listed on the New York Stock Exchange and the Nasdaq system.
- Dow Jones Industrial Average (DJIA): Following the returns of 30 well-established, blue-chip US companies, the DJIA is among the most renowned of the stock market indexes. However, the S&P 500 can be considered a more diversified indicator of the stock market.
- Nasdaq Composite: This index was created in 1971 and tracks all domestic and non-US-based common stocks listed on the National Association of Securities Dealers Automatic Quotation System (Nasdaq) market. The index is composed of more than 4,800 stocks that are traded via this system. Traditionally, the Nasdaq composite has been considered representative of technology stocks; however, today it is composed of an ever-broadening variety of issues.
- MSCI EAFE® Index: Morgan Stanley Capital International's Europe, Australasia, Far East (EAFE) Index is the most prominent of the indexes that track international stock markets. It is a subset of MSCI’s All Country World Index of investable markets, which reflects the performance of more than 9,000 securities across all capitalization, sector and style segments in 45 developed and emerging markets.
- Russell 1000® Index: The Russell 1000 Index measures the performance of the largest publically traded companies in the US equity market. It is composed of the 1,000 largest firms as determined by Russell Investment’s annual ranking by market capitalization.
- Russell 2000® Index: The Russell 2000 Index measures the performance of the small-cap segment of the US equity market. It includes the 2,000 companies ranked below the Russell 1000 in Russell Investment’s annual market-capitalization ranking.
- FTSE 100 Index: This index is part of the FTSE UK Series and is designed to measure the performance of the 100 largest companies traded on the London Stock Exchange that pass screening for size and liquidity.
- Nikkei 225 Index: This index is composed of the 225 largest stocks on the Tokyo Stock Exchange.
- Barclays Capital U.S. Aggregate Bond Index: Covering the principal investment-grade sectors of the US bond market (such as corporate, government and mortgage-backed), this benchmark is among the most broadly diversified indexes of bond market total returns.
- 10-Year U.S. Treasury Bond: The yield on this long-term US government bond is often looked to as the foundation bond yield for analyzing the performance potential of other long-term bond investments. The yield is not an index but a statistic derived from the reported prices for bond trades.
- iMoneyNet Money Fund Averages™: These benchmarks track the averages of taxable and tax-free money market fund yields on a 7- and 30-day basis. They are not indexes but averages of reported yields as calculated by the publisher (iMoneyNet).
Investment indexes are complex devices that can be invaluable tools when used properly, or hazardous when used inappropriately. And while you cannot invest directly in any index, you can find investments that mirror the performance of a specified index. Many investors find these investments ideal for certain purposes. Please feel free to contact me with any questions.
Michael Caplan is a Financial Advisor and Associate Vice President with the Global Wealth Management Division of Morgan Stanley in Denver. He can be reached at Michael.Caplan@morganstanley.com or (303) 595-2094.