Glossary
Cap-weighted
An index weighting where each company's share is proportional to its market value, so big companies dominate. Most mainstream index funds are cap-weighted.
In plain terms
Cap-weighting is self-rebalancing: when a stock's price rises its weight rises automatically, so the fund never has to trade to stay on-index. That is why cap-weighted funds are the cheapest to run — and why they concentrate in whatever is currently largest.
Alternative weightings (equal-weight, fundamental) are really mild factor bets in disguise. Several of the strategies we tested amounted to re-weighting the same universe; after cost, none of them beat the plain cap-weighted version.
Related terms
Educational definitions only. Not investment advice.