Types of indices
Capitalisation weighted indices are the most widely known and quoted form of equity market indices. Capitalisation indices represent the sum of the market capitalisations of the companies making up the index. Changes in the value of the index reflect changes in the aggregate capitalisation of index constituents as their share prices change. The weight assigned to each company in the index is proportional to that company’s capitalisation with larger companies being assigned a greater portfolio weighting and therefore having a greater impact on index values.
To learn more, please refer to the overview of Capitalisation indices.
Fixed Income indices
Fixed income indices measure the performance of the bond market and the short-term money market. The S&P/ASX Australian Fixed Income Index Series is a broad benchmark index family designed to measure the performance of the Australian bond market which meets investable criteria. The series also includes an Australian Bank Bill Index which measures the performance of the Australian money market. The series facilitates use by institutional investment managers, managed and superannuation funds and professional advisors.
Residential Property indices
Property indices are similar to other asset performance indices in that they measure changes in the market value of the asset class in question, in this case residential property. Residential property indices are commonly used to measure historical returns and risks of properties in a given location over time. Residential property indices are of interest to mortgage lenders, economists, developers, property commentators, existing and potential property owners, investors, and financial planners.
An example of a property index is the RP Data-Rismark Home Value Index.
Sector indices enable investors to benchmark the performance of a particular stock market sector or industry. Each company is assigned an industry classification according to that company’s principal business and companies with the same business activity are grouped to form market sector indices.
To learn more, please refer to the overview of Sector indices.
Strategy indices track the performance of a particular investment strategy. In contrast to capitalisation and sector indices which group companies according to their size or industry, strategy indices reflect performance of a rule-based investment strategy. That investment strategy may involve selecting companies on attributes other than their size or industry or making use of specific trading techniques and financial instruments in order to generate returns.
An example of a strategy index is the S&P/ASX Buy-Write Index.
Another example is the S&P/ASX Dividend Opportunities Index - a liquid, yield weighted index comprised of 50 Australian companies. The index is designed for income seeking investors, providing exposure to high yielding Australian common stocks while meeting tradability, quality and diversification requirements.
Volatility indices provide an estimation of expected volatility of certain asset classes, commodities or currencies. These indices use options over an asset class, commodity or currency to derive the market's expectation of volatility looking forward over a nominated period.
An example of a volatility index is the S&P/ASX 200 VIX.