Set enables all types of asset management strategies to exist non-custodially on Ethereum. This article will describe one of those strategies called the Index.
An Index is a financial product used to track the performance of a group of assets in some well-defined, methodological way. In the centralized finance world, the most popular index is the S&P 500 which is used to gauge the performance of the U.S. stock market as a whole. Indexes can be as broad based as the S&P 500, or as sector focused as the DeFi Pulse Index.
Investors often recommend index strategies to retail audiences because of an index’s ability to gain passive exposure to the performance of a sector as a whole, without having to do deep detailed research on which specific assets to buy and at what quantity to buy them. Because they rebalance (change the amount of assets that are held within an index) at regular intervals, they provide a structured, passive strategy. Because of their passive structure, indexes are also typically less expensive than other investment strategies.
Oftentimes the performance of an index will be used as a benchmark for the performance of the industry as a whole, as is the case with the S&P 500 and its use to judge the health of the overall U.S. stock market.
Even though different indexes may cover the same market segment, because of differences in their methodologies, their actual components and performance may differ. Take time to research the methodology and past performance of an index to make sure that it is behaving the way you want it to.
Check out the “Portfolio” tab on the TokenSets website to see which indexes you can buy into today!