Indexes serve as a representation of markets, sectors, investment themes or asset classes.
Markets or even individual market sectors, such as large cap stocks, or real estate investment trusts, can be extremely large as they including hundreds and even thousands of securities. Buying up all the securities just to access one market or asset class is too expensive and time-consuming —not to mention ineffective – for most market participants.
That’s where indexes come in. An index is comprised of only the securities most relevant to its investment theme, allowing market participants to follow market trends without having to track the entire available universe of securities. Essentially, an index acts as a yardstick, capturing representative exposure to a particular market or sector.
There are thousands of available indexes tracking countless market themes or approaches, from large capitalization stocks to foreign currency markets to retail real estate.