Indices are a key instrument in equity markets and lie at the center of modern investing and portfolio management. They are designed as a basket of stocks where each constituent has a specific value, and the index’s overall level (a numerical value or ‘price’) fluctuates according to the securities’ moves.
Composed of the largest or most representative companies by geography, sector or any other strategy, indices gauge — or benchmark — the overall underlying market’s performance, reflecting its ups and downs, and its long-term returns.
STOXX and DAX indices
30+ years of liquid and transparent access to markets across the globe.
Traditionally, index constituents were chosen for their market capitalization (traded value), with the biggest stocks having a proportionally larger weight in the index, and hence a more influential sway. In recent years, other selection criteria have emerged to allow for alternative investment strategies, such as sustainability, thematic or factor investing. What hasn’t changed is the need for indices to be rules-based, transparent and objective.
Many indices have become well-followed barometers of investor sentiment, especially those that track the world’s most important markets. In Europe, benchmarks such as Germany’s 40-stock DAX®, established in July 1988, and the Eurozone’s EURO STOXX 50®, introduced almost a decade later, guide a large population of institutional and private investors in making investment decisions every day. Qontigo manages more than 16,000 indices, while the Index Industry Association estimates there are nearly 3 million indices in the world.
In recent years, in what has been called the passive-investing boom, investors have turned to index-tracking products for their efficiency and low cost. These products — which include exchange-traded funds (ETFs), futures and options — follow the move of indices, leaving out any particular preference, or ‘active’ decision, of the investor. Thanks to the practicality of these products, indices have thus also become tools with which retail investors can implement their investment views.
What are Exchange-Traded Funds?
An exchange-traded fund (ETF) is a type of investment fund that is listed on a stock exchange and can be bought and sold in the market like regular shares. Most ETFs reflect the composition and performance of equity indices, but there are those that hold bonds, commodities, currencies and other assets.
ETFs bring multiple advantages relative to traditional mutual funds, including liquidity, price discovery, transparency and intraday trading. ETFs that passively track indices have also become very popular because of their lower cost vis-à-vis actively-managed funds. Qontigo’s STOXX and DAX indices underlie more than 250 ETFs around the world.
What are Options & Futures?
Options and futures are two types of investment contracts that derive their value from price movements in an underlying index, security or commodity. These so-called derivatives can be privately traded over-the-counter (OTC) between two counterparties, or be publicly traded on exchanges.
Futures and options are popular with professional investors and money managers as they efficiently aid the hedging, building and managing of portfolios. In recent years, however, retail investors have also turned to derivatives for tactical investments. Exchange-traded derivatives on the EURO STOXX® 50 and DAX® indices are among the most popular in the world.
What are Structured Products?
A structured product is an investment whose return is linked to an underlying asset (indices, commodities, etc.) with pre-defined features including payoff, maturity, a coupon and capital protection. Because of their very tailored characteristics, structured products meet the specific objectives of different investors, usually combining exposure to the underlying’s gains with protection from investment losses. In 2022, over 1 million structured products were issued tracking Qontigo indices, making it the industry’s largest index provider.
