When It Comes to Indexes, the Devil is in the Details
Meaningful differences exist even among the most seemingly similar benchmarks.
The December 2020 addition of Tesla (TSLA) to the S&P 500 was a useful reminder of the significant differences between apparently similar indexes with respect to how they select stocks, weight them, and maintain their portfolios over time. A casual observer of markets could easily be forgiven for having assumed that Tesla was a component of all major U.S. stock indexes well before the end of last year given its mainstream ubiquity and mushrooming market capitalization. Plus, one of the major points of appeal of broad market indexes is, well, their breadth. They tend not to miss out on much. But not all big benchmarks are similarly broad, nor do they all take the same approach to which stocks they let in and those they leave out.
Here, I’ll illuminate some of the differences between the benchmarks underpinning Morningstar Medalist exchange-traded funds from the large-blend Morningstar Category and their implications for investors.
Lan Anh Tran does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.