Market capitalization weighting dominates most major indices, allocating larger proportions to companies with higher valuations. This approach inherently favors established giants, leading to concentrated portfolios and potentially higher exposure to specific sector risks, often overlooking emerging opportunities.
Conversely, equal-weight indexing assigns the same weight to every stock, regardless of size or market dominance. This strategy offers broader diversification and can outperform during periods when smaller companies lead market growth, effectively reducing single-stock impact and enhancing overall portfolio resilience.
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