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  4. What is an index?

What is an index?

An index reflects the performance of a particular market or sector in the economy or in finance. Well-known examples are the SMI equity index in Switzerland or the S&P 500 in the USA. What else you need to know about indices.

What is an index?

An index reflects the performance of a group of assets, such as equities, bonds or other financial instruments. It serves as a benchmark for the performance of a particular market segment or industry, depending on the securities universe comprising the securities included in the index. Indices help investors to track market movements and make investment decisions.

The securities are selected according to certain criteria, such as market capitalisation, liquidity or sector affiliation. The market capitalisation of the individual securities within the index generally determines the weighting of the securities. The weightings can also be balanced.

To put it simply, an index is comparable to a basket that contains a selection of securities for which a certain price is paid. If the prices of the constituent securities rise, the index also rises; if the prices fall, the index falls. As a result, indices offer an easy way to observe the trend of a market, industry or securities universe.

MSCI-World: leading global index

The MSCI World is an equity index that reflects the performance of more than 1,600 companies from 23 developed countries and various industries. The MSCI World offers investors an easy way to invest broadly in the global equity market. Investing in the MSCI World and thus indirectly in many companies around the world is easy via index funds and ETFs. 

Eight other stock market indices you should know

  1. Dow Jones Industrial Average (DJIA): US index, comprising 30 of the largest US companies listed on the stock exchange.
  2. S&P 500: US index which represents the 500 largest listed companies in the USA by market capitalisation.
  3. NASDAQ Composite: A US index comprising all NASDAQ-listed equities.
  4. Swiss Market Index (SMI): The index represents the 20 most liquid and largest securities on the Swiss stock exchange.
  5. DAX (German equity index): The index reflects the 40 largest and most liquid companies listed on the Frankfurt Stock Exchange.
  6. FTSE 100: British index comprising the 100 largest companies on the London Stock Exchange.
  7. Nikkei 225: Index of the 225 leading companies on the Tokyo Stock Exchange.
  8. Hang Seng Index: Index representing the 50 largest companies on the Hong Kong Stock Exchange.

Easily invest in indices

  • With exchange-traded funds (ETFs): An ETF is an exchange-traded fund that tracks the performance of a particular index, such as the MSCI World. ETFs can be bought and sold at any time during trading hours, just like equities. As a result, ETFs offer a high degree of flexibility.
  • With index funds: An index fund is an investment fund that seeks to replicate the performance of a specific stock exchange index. Unlike ETFs, traditional index funds are usually traded only once a day at the NAV (net asset value). 

Indexes in a nutshell

  1. Securities universe: Each index is composed of a clearly defined set of securities.
  2. Securities selection: For each index, there are rules that determine which securities from the securities universe are included in the index.
  3. Securities weightings: In the index rules, the index provider determines the proportion of each security in the index.