Jan 11 2012

Indices and Benchmarks

Indices and Benchmarks

An index is a measure of the changes in a group of stocks or bonds representing a portion of the overall market. It can be used to give an investor a point of reference or benchmark as to how a particular market is performing.

If a Canadian investor holds a diversified portfolio, it will typically be allocated between cash, bonds and equities depending upon their risk profile and goals.If you hold a mutual fund or Exchange Traded Fund (ETF), it will list what index it uses as as its benchmark.Some common indice sare as follows.

1. T-Bills are a proxy for cash.  The 3-month T-Bill rate is used as the proxy for cash returns.

2. The DEX Universe Bond is a proxy for the Canadian bond market. Below is a graph of the DEX Universe Bond Index ETF which tracks it. Ticker symbol XBB-TSX

3. S&P/TSX Composite Index is a proxy for the Canadian large cap market listed on the Toronto Stock Exchange (TSX) . The ETF for S&P/TSX 60 from iShares is XIU-TSX

4. The S&P500 is an index of the stock (equity) prices of the  500 largest-cap common stocks actively traded in the United States. The ticker symbol for the S&P500 ETF is SPY

5. MSCI EAFE (pronounced “eef’ ah”) is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada (EAFE stands for Europe, Australasia and the Far East. Below is a graph of the EAFE ETF. Ticker symbol EFA.


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