An index is a grouping of securities intended to represent a broad segment of the market: for instance, the S&P 500 index is composed of the stocks from the 500 largest companies in the United States, while the Barclays Aggregate Bond Index contains a wide selection of investment-grade bonds. Active investment managers are commonly measured against the index which corresponds to their respective universe. A bond manager, for example, may be compared to the Lehman Aggregate Bond Index in order to determine whether his or her decisions to include or exclude bonds from the portfolio (i.e. active management) resulted in improved performance over simply holding the entire group of bonds (i.e. the index).
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