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May 06, 2011

Top Ten Holdings of Domestic and International Equity Indices
By Nat Kellogg, CFA, Associate Director of Research

This chart illustrates the top ten holdings for the three indices that give investors broad exposure to the U.S. (S&P 500), Non-U.S. Developed Markets (MSCI EAFE) and Emerging Markets (MSCI Emerging Markets). The chart shows the market caps of each of the ten largest companies in the index and are listed from the largest weights (at the bottom) to the smallest weights (at the top). Two things stand out. First, investors often believe that by investing in emerging markets they are gaining exposure to smaller companies but, as this chart shows, the largest emerging market firms are multi-national corporations very similar in size and scope to the largest firms in the U.S. Secondly, for both international funds, the relative weights of the companies in the index do not closely match the relative market capitalization of the companies in the index. This is because all of these indices are weighted based on “free float”, which excludes holdings by insiders or other strategic investors. Governments own a significant portion of many of the large multi-national firms in both the MSCI EAFE and MSCI Emerging Markets indices which slightly distorts the weights of these firms in the respective indices.

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