Stock index

A stock index measures the overall performance of a group of shares – it shows at a glance whether the market is rising or falling.

The most important indices:

• DAX: 40 largest German companies (SAP, Siemens, Allianz). Performance index (dividends reinvested!)
• MSCI World: over 1,500 companies from 23 developed countries. THE standard for world ETFs
• S&P 500: 500 largest US companies. Price index (dividends NOT reinvested)
• MSCI Emerging Markets: approx. 1,400 companies from emerging markets

Performance index vs. price index – the big difference:

• Performance index (DAX): dividends are reinvested → the index visibly rises more
• Price index (S&P 500): ONLY price changes → the index rises more slowly
• DAX performance: +99% in 10 years. DAX price index: only +49% – dividends make up half!

Weighting:

• Most modern indices are weighted by free-float market capitalisation
• Large companies (Apple, Microsoft, SAP) therefore carry more weight
• In the S&P 500 the top 10 already make up approx. 38% of the total index

Why indices matter to you:

• An ETF tracks an index – you automatically buy all the shares it contains
• Indices serve as a benchmark: has your fund manager beaten the market?
• Over 90% of professionals perform worse than their benchmark index in the long run