h describe types of equity indices;

Question 1

Types of Equity Indices

Answer 1

Broad market indices cover a country
and asset class.
• Multi-market indices cover an asset
class across many countries.
• Sector indices cover an broad
economic sectors which are collections
of industries related by common
products or common customers.
• Style indices provide benchmarks for
common styles of investment
management.
– Value versus growth
– Small, mid, and large capitalization
– All combinations of the above.

Question 2

Broad Market

Answer 2

Broad market equity indexes represent the majority of stocks in a market.

A broad market index typically consists of securities that represent 90% or more of the total market capitalization for a given market. The object of a broad market index is to provide a measure for the performance of the total market.

Question 3

Multi- Market Indices

Answer 3

Multi-market equity indexes contain the indexes of several countries. Multi-market equity indexes with fundamental weighting use market capitalization weighting for the securities within a country’s market but then weight the countries within the global index by a fundamental factor.

Question 4

Sector Indexes

Answer 4

Sector indexes measure the returns for a sector (e.g., health care) and are useful because some sectors do better than others in certain business cycle phases. These indexes are used to evaluate portfolio managers and as models for sector investment funds.
Sector indexes measure the performance of securities in specific industries or industry sectors.

A sector index measures the returns for an industry sector such as financials

Question 5

Style Indexes

Answer 5

Style indexes measure the returns to market capitalization and value or growth strategies. Stocks tend to migrate among classifications, which causes style indexes to have higher constituent turnover than broad market indexes. An index of value stocks is an example of a style index

“Fundamental weighted index” Fundamental weighting is used to weight indexes by a factor such as the size of the firms or economies represented in the index.

Style indexes measure the returns to strategies that are differentiated by market capitalization and by value or growth.