FYI: In Lewis Carroll’s novel Through the Looking Glass, Alice falls through a mirror and finds everything is turned upside down. Winter is hot. Staying still makes you go faster. Eating quenches thirst.
A new generation of indexes is trying to do exactly this. Called “reverse capitalisation weighting” the line of product takes popular indexes – like the S&P 500 – and turns them upside down.
In a conventional index, the biggest companies get the most weight. As they grow, they get more.
But in reverse weighted indexes, the opposite occurs: the smallest companies get the most weight, and as they shrink, they continue to take a bigger slice. The index goes through the looking glass.
Why would anyone do this? Apparently it works. Or so says a new white paper from Exponential ETFs, the chief architect of the strategy.
Regards,
Ted
http://www.etfstream.com/news/5271_reverse-weighting-turning-the-index-upside-down
