ETFs and Index Investing
Most ETFs are designed to track published market indexes. Index investing offers several benefits, including lower costs than most active management strategies and performance that seeks to track a benchmark. You can also learn about the differences between ETFs and actively managed funds. In addition, index funds are broadly diversified since they typically hold all or many of the securities within the index. This gives you "instant" diversification that can help manage portfolio risk versus holding one or just a few individual stocks.
Understanding how indexes differ is important to selecting the most appropriate ETF diversification strategy for an investor's specific objectives. For example, The Russell 2000 Index, a widely followed small-cap index, includes companies with smaller capitalizations than those in the S&P SmallCap 600, another popular index for small company stocks. Differences in individual index constituents can also give rise to different sector [or country/geographic] exposures from one index to another. The transparency of index holdings, characteristics and construction methodologies helps to ensure proper ETF selection.
FAQs
- Q. Why are the index level values available in the Tracking Error Chart different from other sources?
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A.
Most indexes provide a price and total return index level, and different sources use different values. iShares.com uses total return index levels for all indexes, except for the following:
- The NASDAQ Biotechnology Index uses price returns (total return index levels are not provided by the index provider).
- The MSCI Indexes use net dividend index levels (the total return net of taxes).
- Q. What period of time is used to calculate index fundamentals displayed on the Index Details pages of iShares.com?
- A. The calculations are based on 10 years of index history. In cases when 10 years of historical data is not available, the calculation is from the month-end date following the inception of the index. (Hide Answer)
