Lesson 3 of 5 · 13 min
Fixed-income indexes
Bond indexes do the same jobs as equity indexes, but they hold far more securities, turn over much faster and are weighted by the market value of debt, so they are usually tracked by sampling rather than full replication.
In short
- Uses: measure market performance, benchmark funds and managers, and form the basis of indexed (passive) strategies.
- Versus equity indexes: more constituents (often over 10,000), more turnover (finite maturities, frequent new issues; usually monthly rebalancing), weighted by market value of debt outstanding.
- Government debt is a large share of most broad bond indexes; index composition drifts as the bond market's mix of issuers, maturities and credit quality changes.
- Tracking funds hold a representative sample: buying every constituent is impractical.
- Aggregate indexes are broad; narrower indexes filter by sector, credit quality, maturity, geography, currency or ESG. Pick a benchmark that matches the fund's strategy.
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