Equity Investments
Uses and Types of Indexes
Uses and Types of Indexes
Rebalancing and Reconstitution
Rebalancing: updating the index weights on a periodic basis
Reconstitution: periodically adding and deleting securities
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Uses and Types of Indexes
Uses of Indexes
Reflection of market sentiment
Performance benchmark
Measure of market return
Calculate beta
Calculate expected and risk-adjusted returns
Model portfolio for index funds
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Uses and Types of Indexes
Types of Equity Indexes
Broad market: various weighting schemes
Multi-market market cap: weighted
Multi-market with fundamental (GDP) weighting
Sector: health care, technology, finance, consumer goods, etc.
Style: large cap, mid cap, small cap; value vs. growth
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Uses and Types of Indexes
Fixed-Income Indexes
By maturity, type of issuer, country, region, sector, or
collateral
Construction issues
Broad universe, high turnover
Lack of price data
Illiquidity
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Uses and Types of Indexes
Alternative Asset Indexes
Commodity indexes
Indexes of futures contracts; performance may differ from
commodity
Wide variety of commodity weights
Real estate indexes
Appraisals, repeat sales, REITs
Hedge fund indexes
Self-selection and survivorship bias increase returns
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Uses and Types of Indexes
Types of Security Market Indexes
Constituent Weighting
Index Reflects Notes
Securities Method
Dow Jones Large U.S. 30 Price Stocks chosen
Industrial stocks by WSJ editors
Average
Nikkei Stock Large Japanese 225 Modified price Adjusted for
Average stocks high-priced
shares
TOPIX All stocks on the Variable Market Contains 93% of
Tokyo Stock capitalization, Japanese market
Exchange: First adjusted for float cap; many small,
Section illiquid stocks
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Uses and Types of Indexes
Types of Security Market Indexes
Constituent Weighting
Index Reflects Notes
Securities Method
MSCI All Country Stocks in 23 Variable Market Available in both
World Index developed and capitalization, U.S. dollars and
24 emerging adjusted for float local currency
markets
S&P Developed Global energy Variable Market Model portfolio
Ex-U.S. BMI stocks outside capitalization, for an ETF
Energy Sector United States adjusted for float
Index
Barclays Capital Global Variable Market Formerly
Global Aggregate investment-grade capitalization compiled by
Bond Index bonds Lehman Brothers
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Uses and Types of Indexes
Types of Security Market Indexes
Constituent Weighting
Index Reflects Notes
Securities Method
Markit iBoxx Below Variable Market Represents liquid
Euro High-Yield investment-grade capitalization portion of market
Bond Indices bonds
FTSE EPRA/ Global real Variable Market Represents
NAREIT Global estate capitalization, publicly traded
Real Estate adjusted for float REITs
Index
HFRX Global Global hedge Variable Asset weighted Contains various
Hedge Fund funds hedge fund
Index strategies
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Uses and Types of Indexes
Types of Security Market Indexes
Constituent Weighting
Index Reflects Notes
Securities Method
HFRX Equal Global hedge Variable Equal weighted Contains same
Weighted funds strategy funds as
Strategies EUR HFRX Global
Index Hedge Fund
Index and is
equal weighted
Morningstar Style U.S. stocks Variable Market 9 categories
Indices grouped by capitalization, classified by
value/growth and adjusted for float combinations of
market cap 3 cap and 3
value/growth
categories
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