Collecting Companies: Equity Index Investing

There are many ways to group, categorize, and weight companies within a portfolio: Learn how some of the most popular approaches get the job done.

  • Why Invest in Equity?

    Stock prices and news are widely covered in mainstream media but rarely are the most fundamental questions answered: Why would anyone want to own stocks? What are the advantages of equity investing?

  • Equity Indices

    How do I decide which companies to invest in? Most people don’t have time to break down financial statements and track earnings to make these decisions. Fortunately, equity indices make the task extremely simple (and cheap). 

  • Market Cap Indices

    Market-cap-weighted indices are by far the most popular indices used by investors and fund managers. Outside of the Dow Jones industrial average (which is weighted by price), every major global benchmark weights securities by market capitalization.

  • Equity Sector Indices

    Excited about energy? Rosy on real estate? Hopeful on health care? An economic sector is a group of industries—and their respective companies—that are subject to similar economic factors. To determine which companies operate in which industries and therefore which sectors, index providers have created business classification systems.

  • Equity Style Indices

    Value investing dates all the way back to 1928, when Ben Graham and David Dodd began teaching the concepts at Columbia Business School in New York. In their seminal book “Security Analysis,” which was released in 1934, they laid the groundwork for what would ultimately become a ubiquitous investment strategy.

  • Equity Country Indices

    One might think assigning a company to a particular country is easy. But as with most things these days, even making this simple decision is more complex than you’d think. Globalization has crept not only into the world’s economy, but the capital markets as well.

  • Emerging Markets Indices

    When it comes to index investing in emerging markets, the big issue is classification but it’s not the only thing to keep an eye on. There’s no universal definition of an “emerging market”, so various index providers take differing approaches to defining the segment. The various approaches can be materially different—with real effects that trickle through investor portfolios.

  • Equal Weighted Indices

    Market-cap weighting is widely considered to be the neutral view of the market. Under this scheme, the largest firms get the biggest weightings in the index. Since these firms wield the most influence on the market, they have the largest influence on the returns of the index measuring that market. In an equal-weighting scheme, this methodology is simplified: Every company gets exactly the same weight; small companies get just as much weight as giants.

  • Low Volatility Indexing

    What if you could reduce the risk of owning a basket of stocks by taming its response to the market’s wild swings? That’s the allure of low-volatility indexing—a concept that has found traction with investors.

  • Focus on China

    There are now more than 20 China-focused equity ETPs trading on multiple exchanges throughout Europe—on the LSE alone, there are close to 15 listings of 8 different products. You might assume that since they’re all focused on China, they offer similar exposure, but investing in China is extremely tricky, so it helps to do a little extra homework.