The Problem with Equal Weight Index Funds

Market capitalization weighting, which is what typical index funds do, assign index weights based on each company’s size. An equal weighted index fund, as the name implies, equally weights all of the stocks in a market or market segment.

Equal weighting seems like the solution to many of the perceived problems that market capitalization weighted indexes have today, like high valuations and high levels of concentration in the top stocks. Equal weighting has actually outperformed cap weighting going back decades, but it introduces its own unique risks, costs and inefficiencies.
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