Market cap index funds are investment vehicles that track specific market cap categories. These funds aim to replicate the performance of a particular market index composed of stocks within a specific market cap range. Investors can gain exposure to a specific market cap category without the need to select individual stocks. For example, there are index funds that track the S&P 500 Index, which consists of large-cap stocks. These funds provide investors with broad exposure to some of the largest and most established companies in the United States. Similarly, there are index funds that focus on mid-cap and small-cap stocks, such as the Russell Midcap Index and the Russell 2000 Index. Since the criteria for these index funds is usually based solely on the size of the company, there is no focus on the quality of individual companies. With adequate expertise, technology, and experience, unhealthy companies can be removed from the index, thereby potentially improving the overall index performance. Enron’s delisting in 2001 is good example of why only considering a company’s size can be perilous. Once a darling of Wall Street, the company was
By Indexopedia Research Team | October 15, 2024 | In