What Is a Subindex?

In financial markets, a subindex tracks the performance of a group of securities (usually stocks), which are part of a larger index, based on certain common sub-characteristics that differentiate them from the rest of the securities in the larger index.

Key Takeaways

  • In financial markets, a subindex tracks the performance of a group of securities (usually stocks), which are part of a larger index, based on certain common sub-characteristics that differentiate them from the rest of the securities in the larger index.
  • The Present Situation Index (PSI) is a subindex of the Consumer Confidence Index (CCI), which is a broad measure of people's expectations about near-future economic performance, while the PSI emphasizes attitudes toward business and employment conditions.
  • Rather than buy shares of every company in a given industry or sector, an investor can get exposure to all of them in a single investment by buying an index fund, usually an ETF, that aligns with a sector subindex.

Understanding a Subindex

A subindex is a group of securities that are part of a larger classification, but that are also tracked as a separate group because of a common sub-characteristic. Analogous to a subsurvey that asks a supporting set of questions that are part of the larger set of questions, a subindex tracks the performance of a smaller related group of securities that are part of the larger group of securities being tracked.

For example, a grains subindex might only track soybeans, wheat, and corn, providing a snapshot of just one part of the overall agriculture sector index. Similarly, a copper subindex would track the performance of just one metal, while a broad-based metals index would track the performance of all metals.

The Present Situation Index (PSI) is a subindex of the Consumer Confidence Index (CCI). The CCI is a broad measure of people's expectations about near-future economic performance, while the PSI emphasizes attitudes toward business and employment conditions. The PSI is combined with another subindex, the Expectations Index, which asks consumers about their expectations for economic activity. Together, these two subindices form the CCI, which is published each month by the Conference Board.

Subindices and Exchange Traded Funds (ETF)

Rather than buy shares of every company in a given industry or sector, you can get exposure to all of them in a single investment by buying an index fund that aligns with a sector subindex. Such investments are called exchange traded funds (ETFs), and they are popular with smaller investors for the ability to buy a diversified basket of an entire grouping, often with little to no commission and expense ratios that are typically less than 0.50% to 1%.

These ETFs are similar to mutual funds, but trade like stocks, and they allow an investor to get exposure to a wide range of investments in a sector or industry without needing to research individual stocks. Many financial advisors recommend that investors try to maintain a portfolio that offers good exposure to all of these industries and sectors. 

Example of an Industry Subindex

The consumer discretionary sector consists of businesses that have demand that rises and falls based on general economic conditions, such as firms that sell washers and dryers, sporting goods, new cars, and diamond engagement rings. At present, the consumer discretionary sector contains twelve industries. Examples of consumer discretionary stocks include Apple, Disney, and Starbucks. Each of these industries have a corresponding subindex that an investor can buy into:

  1. Automobile Components Industry
  2. Automobiles Industry
  3. Distributors Industry
  4. Diversified Consumer Services Industry
  5. Hotels, Restaurants, and Leisure Industry
  6. Household Durables Industry
  7. Internet and Catalog Retail Industry
  8. Leisure Products Industry
  9. Media Industry
  10. Multi-line Retail Industry
  11. Specialty Retail Industry
  12. Textile, Apparel, and Luxury Goods Industry