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Investors look beyond equal-weight ETFs as concentration rises
The RAFI Fundamental Index aims to address concentration by separating price from portfolio weight, then using fundamentals to guide allocations.
ETF Trends says equity market concentration is at historic levels, prompting investors to seek index weighting approaches designed to reduce idiosyncratic and concentration risk.
For decades, equal-weight strategies have been viewed as a way to escape market-capitalization concentration by giving each constituent a fixed, uniform weight, ETF Trends notes.
However, the outlet argues that a one-size-fits-all equal-weight method can have structural drawbacks, such as diluting mega-cap exposure mechanically without accounting for company size or economic contribution.
ETF Trends describes the RAFI Fundamental Index as an alternative that disconnects price from portfolio weight and then uses a fundamentals-based methodology to set allocations rather than assigning identical weights to every company.