Fundamentally Weighted Index

This type of index is composed of companies that are considered in terms of fundamental criteria and not market capitalization. Stocks with high market capitalizations may be overvalued in comparsion to stocks with lower market capitalizations, and indices like the S&P 500 which are market capitalization weighted would give high market capitalization stocks extra weighting.  However, constructing a fundamentally weighted index may lead to more active management as the criteria will need to be defined and the stocks chosen accordingly.

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