The Research Affiliates Cap-Weighted Index strategy selects companies using the Fundamental Index™ approach and weights them by market capitalization. The strategy takes a contrarian tilt by avoiding overpriced companies with small fundamentals and large market capitalization.
How does a market cap-weighted index work?
To find the value of a capitalization-weighted index, first multiply each component's market price by its total outstanding shares to arrive at the total market value. The proportion of the stock's value to the overall total market value of the index components provides the weighting of the company in the index.
What is a cap-weighted index fund?
In a price-weighted stock index, each company's stock is weighted by its price per share, and the index is an average of the share prices of all the companies. Price-weighted indexes give greater weight to stocks with higher prices in terms of their contribution to the index value and changes in the index.