Level 0 Investing & ETF Basics · Part 2/16

What Is an Index? Rules Instead of Picks

By Alexander Bock, founder and data analyst

An index is a rules-based list of securities that measures a market. The S&P 500 covers 500 large US firms, the MSCI World around 1,250 firms across developed markets. An ETF copies such an index instead of picking holdings itself.

Ten bars of different heights standing for company size; the three largest together carry as much weight as the seven smaller ones
An index usually weights by market value: (1) the largest company contributes most to the index move, (2) the smallest barely at all. (3) The three largest bars here weigh as much as all the others combined, which is why a single heavyweight moves the whole index noticeably.

Rules Decide, Not a Manager

Every index has a written rulebook. It sets out which securities qualify at all (country, listing, minimum size, trading volume). It also fixes how often the list is reviewed and how weights are handed out. Membership follows from those rules.

The most common approach is market-cap weighting: a company’s stock market value sets its share. When a price doubles, the share grows with it, and nobody intervenes.

A Live Example

Live data

What's Inside – S&P 500

Based on: State Street® SPDR® S&P® 500 UCITS ETF (Dist) · as of Oct 30, 2026 · 504 holdings · index page S&P 500

What's inside – S&P 500
#StockWeight
1Apple Inc. AAPL7.70%
2NVIDIA Corporation NVDA7.59%
3Microsoft Corporation MSFT5.94%
4Amazon.com Inc. AMZN3.61%
5Alphabet Inc. Class A GOOGL2.51%
6Broadcom Inc. AVGO2.38%
7Meta Platforms Inc Class A META2.08%
8Alphabet Inc. Class C GOOG2.02%
9Eli Lilly LLY1.74%
10Tesla Inc. TSLA1.72%

Sectors

IT37.4%
Finanzwesen12.2%
Gesundheitsversorgung10.3%
Zyklische Konsumgüter9.0%
Kommunikation8.4%
Industrie8.2%

Nobody picks the weights above. They follow the index rules and shift as prices move.

What Follows From It

  • The index decides what sits inside the fund and how concentrated it is. Under market-cap weighting a handful of large holdings carry a sizeable part of the move.
  • Two ETFs on the same index are nearly identical inside. The differences are cost, income treatment and replication method — see ETF fees.
  • The study US weight in the MSCI World measures in detail how concentrated the MSCI World really is.
  • Every index we cover is listed in the indices overview.

Other Weighting Methods

  • Price-weighted: the Dow Jones Industrial Average and the Nikkei 225 weight by share price, not market value. An expensive stock counts for more than a cheap one, regardless of the company’s size.
  • Equal-weighted: every stock gets the same share, so large and small companies count equally.
  • Capped: the weights of the largest stocks are limited, as in many sector indices.

Price Index or Total Return Index

A price index shows only price moves; a total return index reinvests paid-out dividends. The DAX is calculated as a total return index, while the S&P 500 is usually quoted as a price index. Over long periods the gap becomes large, so the two kinds cannot be compared directly.

Information only, not investment advice.

Updated · Content and figures checked