This article outlines the performance differentials between five prominent index providers: Dow Jones, Morningstar, Morgan Stanley Capital International (MSCI), Russell and Standard & Poor's. Additionally, this article calculates the variation in performance of a multi-asset portfolio when utilizing U.S. equity indexes (large, mid and small) from the five major index providers.
As will be shown, substantial performance differences exist between indexes that claim to be measuring the same space within the U.S. equity market. Nevertheless, the performance differences among various U.S. equity indexes are largely mitigated when such indexes are utilized in a broadly diversified, multi-index portfolio.
The data utilized in this study were obtained from Morningstar Principia. The time frame of this study is the 10-year period from Jan. 1, 2002 to Dec. 31, 2011.
Large-Cap US Equity Indexes
We start with large-cap blend (blend indexes are typically described as indexes where neither a growth nor value orientation is dominant). A commonly used benchmark in the U.S. equity market is the Standard & Poor's 500 Index (see the middle portion of Figure 1 labeled "Blend Indexes"). Its 10-year average annualized return from 2002-2011 was 2.92 percent. However, there are other indexes that also measure the large-cap U.S. equity market. For instance, the Dow Jones US Large Cap Index had a 3.44 percent annualized return over the same 10 years. Alternatively, the 10-year annualized return of the Morningstar Large Cap Index was 2.49 percent, representing a difference of 95 basis points compared with that of the Dow Jones US Large Cap Index.