What are the Top 3 Major Indices?

Stock indices represent the value of baskets of publicly listed companies across sectors. Traders use indices to track the overall performance of an economy and examine the return on different financial instruments in order to select potential trades. . They are popular amongst traders because they offer narrow spreads, smooth chart patterns, and high liquidity. Keep on reading to find the best types of indices in the stock market.

Nasdaq-100 Index

Nasdaq is one of the world’s largest and most-watched indices in the financial markets, according to Investopedia. The index comprises shares of the largest technology companies traded in the Nasdaq market system. Here, investors can invest in shares of giant tech companies, such as Microsoft, Apple Inc., Facebook, Amazon, Tesla, and Alphabet (Google).

While the index has more than 2,500 stocks, the Nasdaq composite is the main index. The stocks traded on this system contain ticker symbols with four characters. For example, TWTR represents Twitter while MSFT represents Microsoft.

Dow Jones Industrial Average

Named after Charles Dow and Edward Jones, traders refer to this popular index like the Dow 30, Dow Jones, or just the Dow. Today’s Dow Jones incorporates 30 large companies, especially blue chips, listed on the United States stock exchange market weighted by their share prices.

The Dow index today shows the dynamics of the industrial sector in the US. It’s one of the crucial benchmarks for the US economy and market performance. Some of the giant companies’ stocks listed in this index include; IBM, Coca-Cola, General Motors, Microsoft, and Intel.

S&P 500 Index

Also known as “the market” or “the S&P 500”, this index is a commonly known large-cap segment of the United States domestic share market. It represents roughly 500 US-based companies and covers approximately 75% of the US entire equity market. It’s regarded as a major index because its stock prices movement affects other countries' stock indices.

Large tech companies, such as Apple and Microsoft, form a considerable part of this index. Other top corporations on the index include Google, Facebook, Amazon, Johnson & Johnson, Visa, and Berkshire Hathaway.

Lesser-Known indices

FTSE 100

The Financial Times Stock Exchange (FTSE) is a top index in the United Kingdom. It comprises 100 companies with the biggest capitalization in the London Stock Exchange. This index includes companies operating in over 150 countries worldwide. BP, the Royal Dutch Shell, and HSBC form a large part of this index.

The Russell 2000

It represents the small-cap share of the equity market and covers roughly 2,000 of the smallest organisations depending on the market capitalization-weighted index. “The market is designed to offer an unbiased and comprehensive small-cap barometer”, says Russell Investments. The index is redefined yearly to prohibit companies with high stock index prices from distorting the performance of small-cap stocks.

The Russell 3000

Commonly known as the “broad market index”, this index represents roughly 3000 stocks, and it’s different from the Russel 2000. It analyses the performance of the biggest companies in the US. ETFs and mutual funds that trade in a way that imitates this index can be useful in building portfolio exposure, as portfolio managers need to include other categories like foreign stocks, bonds (fixed income), and small-cap stocks.

Lastly, the increase of smart beta index has greatly increased the number of total-market indices. Simply put, smart beta indices are seen as passive indices built with fundamental screens or special characteristics to enhance the quality of the index constitution. Listed below are the top three Advisors Asset Management (AAM) smart beta index funds:

• S&P 500 High Dividend Value ETF
• S&P Emerging Markets High Dividend ETF
• S&P Developed Markets High Dividend Value

It’s also worth mentioning ethical stock market indices, which are indices created on the basis of social or environmental criteria. The world’s top ethical indices include the Dow Sustainability, FTSE4Good, and MSCI.