A world of indexes 🌎

We’ve previously written about index investing and index funds. But I thought it might be worth having a deeper dive into the stock indexes (or indices if you’re fancy) out there, most of which can be tracked with funds on Freetrade.

The big indexes are run by information and analytic companies called index providers. Some of these companies are managed by or linked to a specific stock exchange but there’s a lot of variation.

They make money by licensing the indexes they maintain to financial institutions and media.

This is a selection of the biggest index providers and their major indexes. It’ll be a living list, so if there are any indexes you want to see explored, buzz below and we’ll add them in.


MSCI

Once a division of investment bank Morgan Stanley, index provider MSCI was spun off to trade as its own public company. This means MSCI now sits within the S&P 500 and the Russell 3000. Meta.

MSCI runs a number of indexes, but it’s most famous for its global ones.

MSCI World
Tracks: Global developed markets
Trackable on Freetrade with: iShares MSCI World (IWDG)

Although it’s called ‘world’, this index is really a snapshot of the developed world as it excludes emerging markets. MSCI World includes over 1600 companies from 23 different countries. It’s one of the most established global indexes and often used to get exposure to an international array of the biggest, most developed markets.


S&P Dow Jones Indices

A big collaboration between Standard and Poor, the Chicago Mercantile Exchange and News Corp (through their holding of The Wall Street Journal), S&P indexes has some of the most popular indexes.

S&P 500 (trackable on Freetrade)
Tracks: Big American stocks
Trackable on Freetrade with: iShares S&P 500 (IUSA), Vanguard S&P 500 (VUSA)

Possibly the world’s most famous and influential index, composed of 500 very large US companies. A common misconception is that the S&P contains the 500 largest American firms. Actually, to be included in the index a company has to satisfy 8 different measures from areas like liquidity, financial viability and share structure. The indexers assess these metrics themselves.

Snap Inc., for instance, is not in the S&P 500, because of a recent rule barring companies that restrict common shareholder voting rights - at Snap, Evan Spiegel and Bobby Murphy hold almost all the voting rights.

S&P Dividend Aristocrats (trackable on Freetrade)
Tracks: American dividend stocks
Trackable on Freetrade with: SPDR ETF (USDV)

Popular among income investors, Dividend Aristocrats includes companies from the S&P 500 that have increased their dividend annually for 25 consecutive years. It’s fairly diversified across a few sectors, but with an unsurprising weighting toward consumer staples and industrial companies, which tend to have a more enthusiastic approach to dividends

Dow Jones Industrial Average
Tracks: 30 major US companies

First assembled in 1885 and the second oldest stock index in the world (number one is the Dow Jones Transportation Average), the Dow consists of 30 big US companies meant to represent the titans of modern American industry. In the past, this would have included the likes of tobacco, oil, railroad and sugar companies. Now, it includes a lot of tech companies, but also consumer staples like Walmart and McDonald’s. The Dow isn’t as varied or highly diversified index as most. It’s more like the star representatives of the US economy. As such, it’s often used as a performance metric for US economic health.

Unusually, the Dow is price-weighted, which means that the value of the index is calculated based on the price per share of its constituents rather than their overall market cap. This is quite an antiquated way to judge an index, since the price of a share is relatively shallow data point, compared to the value of an overall company. For instance, it could mean that a company worth $10B, but with shares worth $100 each would be more represented than a $100B company with shares worth $10 each.

The Dow uses adjustments to ensure that stock splits and other corporate actions don’t skew the index too much.


FTSE Russell

Founded in 1984 and formerly a joint venture between The Financial Times (hence FT) and the London Stock Exchange, it’s now wholly owned by the LSE. They publish the UK’s most famous indexes as well as the popular Russell indexes.

FTSE 100
Tracks: 100 biggest UK firms
Trackable on Freetrade with: iShares FTSE 100 (ISF)

Broadly the 100 biggest companies in the UK. It’s not necessarily a perfect bellwether of the UK economy since many of the companies are globally, rather than locally, focused.

FTSE 250
Tracks: 101-350 of the UK’s biggest companies
Trackable on Freetrade with: Vanguard FTSE 250 (VMID), iShares FTSE 250 (MIDD)

Not in fact the top 250 UK companies, but the next 250 over the FTSE 100 i.e. 101-350. This is where you’ll find big but predominantly UK-focused companies: mid-size national retail chains, industrial firms, construction companies etc. It also includes a lot of investment trusts.

Russell 3000
Tracks: US stock market
Trackable on Freetrade with: Xtrackers Russell 2000 (XRSG, small-cap part only)

The Russell 3000 is a huge index of the 3000 largest US public companies, It also splits into two sub-indexes called the Russell 1000, the top 1000 companies, and the Russell 2000, the bottom 2000. The former is a bit like a bigger S&P 500 - the latter is the leading index for US small-caps.

FTSE All World
Tracks: Global stock market
Trackable on Freetrade with: Vanguard FTSE All World (VWRL)

Covering 3000 securities from 47 countries, the FTSE All World is one of the most heavily diversified, expansive indexes. If an investor wanted non-specific exposure to the whole of the stock market, a fund tracking this index would be one of their best bets.

FTSE Emerging Markets
Tracks: Emerging market stocks
Trackable on Freetrade with: Vanguard FTSE Emerging Markets (VFEM)

With over 1000 constituents from 22 emerging markets, FTSE Emerging Markets captures about 80% of the stock market in each of those markets. Countries include Brazil, Russia, China and Korea.


NASDAQ

New York’s other big stock exchange, the NASDAQ is an alternative to the NYSE and home to many big tech companies.

NASDAQ 100
Tracks: 100 odd NASDAQ-listed stocks
Trackable on Freetrade with: Invesco NASDAQ 100 (EQQQ)

An index of just over 100 securities from NASDAQ, based on market cap but excluding financial service companies. Since tech is heavily represented on NASDAQ, the NASDAQ 100 is often used to invest across the technology sector. However, tech is by no means the only sector in the index.

NASDAQ Composite
Tracks: Almost all NASDAQ stocks

Less popular with fund managers than the NASDAQ 100, the Composite is composed of over 3300 companies on NASDAQ, with no restriction on sector.


STOXX Ltd

STOXX is a European-focused index provider owned by Deutsche Borse, the operator of the Frankfurt Stock Exchange

STOXX Europe 50
Tracks: 50 major Euro-wide stocks, inc UK

50 big blue chips from 18 countries across Europe, including the UK.

Euro STOXX 50
Tracks: 50 major Eurozone stocks
Trackable on Freetrade with: iShares EURO STOXX 50 (CS51)

A more limited index of the 50 “supersector leaders” within the Eurozone. Heavily dominated by Germany, France and The Netherlands.

EURO STOXX 30 Select Dividend
Tracks: 30 dividend paying European stocks
Trackable on Freetrade with: iShares EURO STOXX Select Dividend 30 (IDVY)

A small index of high dividend yield European stocks.

STOXX Europe 600
Tracks: European stock market
Trackable on Freetrade with: Xtrackers STOXX Europe 600 (XSX6)

Covering 600 securities, 17 countries and 90% of the European stock market by value, this is pretty much the European equivalent of the S&P 500. However, due to the generally smaller size of European companies, the 600 includes large, mid and small cap firms. The index is 27% UK companies.


The Nikkei

Japan’s flagship financial newspaper, the biggest in the world in terms of circulation and the current owner of London’s Financial Times. They’ve maintained the country’s most important stock index since its creation in 1950.

Nikkei 225
Tracks: Japanese blue chips and midcaps

An index of the 225 largest Japanese companies listed on the Tokyo Stock Exchange, including the likes of Sony, Nintendo and Toyota. Like the Dow, it’s a price-weighted index.

It reached an all-time high in 1989 during a Japanese asset bubble. Since then it’s never scaled to the same peak, but it’s been appreciating a lot since the early 2010s. There’s speculation that the Japanese central bank is pumping up asset prices; it’s among the top 10 shareholders of 90% of the companies in the index.


Freetrade does not provide investment advice and individual investors should make their own decisions or seek independent advice. The value of investments can go up as well as down and you may receive back less than your original investment. Tax laws are subject to change and may vary in how they apply depending on the circumstances.

Download the Freetrade app

|227x67

22 Likes

That’s very cool and super comprehensive, thanks!

Are you looking into adding something like the FTSE Global All Cap Index?
Would love to be able to hold all caps globally. <3

That’s what I hold @ Vanguard, and if there will be something like that I’ll be able to switch my ISA to FreeTrade.

3 Likes

Could you add some more on either thematic ETFs and/or bond ETFs that don’t necessarily have an obvious benchmark?
Some info on methods in their construction and requirements for inclusion would be useful. If you are adding any thematic ETFs to the platform perhaps detail on those specifically would be relevant (I.e iShares MSCI World ESG Screened, iShares Global Timber & Forestry). I like iShares Megatrend themes in particular, and am curious about how bond ETFs are designed (Government, corporate, and green bonds)

S&P 500 index crossed 3000 for the 1st time :chart_with_upwards_trend:

4 Likes

…and let’s not forget about the, albeit slightly off topic, Big Mac Index. :hamburger:

2 Likes