The MOEX Russia Index: what it measures

When people say the market rose, they usually mean the index. It is worth understanding what exactly rose.

How it works

The index is a weighted basket of the largest companies' shares. A security's weight is set not by the size of the company as a whole but by its capitalisation adjusted for the share of stock in free circulation: shares held by the state or by a controlling shareholder are excluded, because they do not trade.

Why that matters

The index reflects the movement of large liquid securities. Small companies are not in it, and their behaviour can diverge from the index for long stretches.

The constituents are reviewed

A committee regularly revises the basket: some securities enter, others leave. Because of that the index's historical series is a series of different baskets rather than one. A separate consequence: the index contains no companies that ceased to exist, and that creates a systematic bias when looking backwards.

Related indices

Alongside the headline one there are sector indices, a blue-chip index and bond indices. They answer narrower questions and are sometimes more informative than the broad measure.

Why an investor should care

The index is the benchmark against which a portfolio's result is judged. A portfolio lagging the index calls for an explanation; a portfolio beating it over a short stretch calls for one too, because most often that follows from more risk rather than better selection. More in The benchmark: what to compare your result against honestly.

Index funds make that benchmark purchasable: The index approach: buying the whole market.