FYI: A capitalization-weighted index, like the original version of the S&P 500, is clearly biased toward big companies. They’re given more heft. That’s advantageous at times, but it’s a drag on performance at other points in the economic cycle. When investors are exuberant, smaller-cap issues tend to find favor; they rise at an accelerated pace. Larger, “safer” stocks are preferred when there are clouds on the financial horizon.
Assigning equal weight to all stocks in a portfolio allows greater expression of the smaller companies’ returns.
Regards,
Ted
http://wealthmanagement.com/print/etfs/equal-weight-does-not-mean-equal-risk
