Research done by Aon Hewitt and Cass Business School shows that buying an equity index that is a market capitalization-weighted index may be not be the best approach in investing. What they found is that indices constructed by the capitalization-weighted method underperformed all other methods of constructing indices.
You can construct indices using an equal weight method, or capitalization with a cap or base an index on low volatility. Another study constructed indices using total dividends paid by a company; each company's total annual cash flow; each company's book value; each company's total annual sales and also according to a combination of these.
In these studies, the indices constructed by capitalization method, which is the common method, underperformed all other methods. The point is that you might want to consider this information if you are buying an ETF.
You can find information on these papers on Cass Business School's site together with the papers. What may be more interesting is a 5 minute video on this subject.
On my other blog I am today writing about Valener Inc. (TSX-VNR, OTC-VNRCF)...continue...
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