By Ari I. Weinberg
The investing world is awash in indexes.
Originally built to benchmark stock, bond, commodity, real
estate and currency performance, indexes now form the basis of
funds and other investment products and strategies with more than
$13 trillion in assets under management globally, according to
Pensions & Investments, a provider of news and research to
institutional money managers.
While investors in recent years have enthusiastically embraced
passive investments designed to track indexes, actively managed
mutual funds run by human stock pickers have had to fight to
justify themselves. So how much do you know about the companies and
methodologies behind securities indexes? Here is a quiz to test
1. According to the World Federation of Exchanges, there are
48,000 listed companies globally. How many equity indexes have been
built to track these stocks?
B. 3.07 million
C. 48.03 million
ANSWER: B. According to a June 2018 survey of the world's
largest index administrators conducted by the Index Industry
Association, there are 3.73 million indexes globally, of which 3.07
million track stocks.
2. This might seem like asking who is buried in Grant's tomb,
but here goes: How many securities are tracked by the S&P 500
ANSWER: C. Ahh, not so obvious after all. The S&P 500 -- an
index of the largest U.S. publicly traded companies by
float-adjusted market capitalization (meaning closely held shares
are excluded) -- does include 500 companies, as its name implies.
But those companies are represented by 505 securities due to
multiple share classes of Google parent Alphabet, Discovery, News
Corp. (the publisher of The Wall Street Journal), 21st Century Fox
and Under Armour.
3. With nearly $3.7 trillion in assets under management in the
U.S., exchange-traded products have become a primary way for
investors to gain exposure to index-tracking. How many index firms
have exchange-traded products based on their work?
ANSWER: C. According to research firm XTF, there are 159
separate index providers whose indexes are licensed by asset
managers offering exchange-traded products.
4. Which index firm was funded initially by an investment bank
and an asset manager to build global benchmarks?
A. S&P Dow Jones Indices
B. FTSE Russell
D. The Center for Research in Security Prices
ANSWER: C. Originally backed by Morgan Stanley and Capital Group
International, MSCI Inc. builds and maintains stock indexes that
cover the world. The company went public in 2009, and is no longer
controlled by its founding entities.
5. In addition to mutual funds and ETFs, there are futures and
options contracts that allow investors to place wagers on index
moves. When was the first S&P 500 index future introduced in
A. October 1987
B. October 1929
C. March 2000
D. April 1982
ANSWER: D. The Chicago Mercantile Exchange introduced the first
S&P 500 index future for trading on April 21, 1982. S&P 500
index options were first traded on the Cboe Options Exchange on
July 1, 1983. The first retail S&P 500 index fund launched in
1976, and the first ETF in 1993.
6. This is used by index firms to validate the efficacy of a new
index and how well a new index represents the market, factor or
trend that it is designed to represent.
A. Regression analysis
ANSWER: B. Before releasing or updating an index, an index firm
will conduct a backtest of the methodology using historical data to
see how the index would have worked in the past.
7. Which of the following isn't something that index firms or
index committees regularly consider when evaluating index
C. Tracking error
D. Weighting schema
ANSWER: C. Tracking error -- the difference between the
performance of an investment and its index -- is a concern for
asset managers and investors, not index publishers.
8. The S&P GSCI Total Return Index tracks how many
ANSWER: C. Introduced in 1991, the S&P GSCI tracks listed
futures contracts on 24 commodities, including wheat, coffee,
cattle, heating oil, lead and, of course, gold.
9. U.S. Treasury securities account for what portion of the
Bloomberg Barclays U.S. Aggregate index, which was built by Lehman
Brothers in 1986 to gauge U.S. bond-market performance?
ANSWER: A. The AGG, as the index is known, included 261 U.S.
Treasury securities as of January. Government agency securities
accounted for 6.1% of the index, corporate issues 24.5% and
asset-backed securitizations 30.5%.
10. First published in 1896, the Dow Jones Industrial Average is
a price-weighted index of 30 significant U.S.-based companies
across many industries. How many companies have been included in
the Dow across its tenure?
ANSWER: D. Of the current 30 companies, Exxon Mobil has had the
longest run in the index, since 1928, while Walgreens Boots
Alliance was added in June 2018 to replace General Electric, an
original index component in 1896 and then a member continuously
from 1907. (Two Wall Street Journal representatives sit on the
five-person Dow Jones Averages index committee.)
11. Which of the following U.S. groups or entities isn't
directly involved in creating or monitoring securities indexes?
A. Securities and Exchange Commission
B. Calculation agent
C. Index publisher
D. Index licensee
ANSWER: A. In the U.S., securities indexes aren't regulated
directly. The SEC does, however, have an open inquiry regarding the
duties and expectations of an index publisher. The calculation
agent, on the other hand, plays a critical role, tabulating daily
index values based on the methodology.
Mr. Weinberg is a writer in Connecticut. He can be reached at
(END) Dow Jones Newswires
March 03, 2019 22:23 ET (03:23 GMT)
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