Josh Stern

Small Cap ETFs In a Large Cap Economy

I've long been a fan of equal weighted rather than market cap weighted indices, and I use the ValueLine arithemetic index as my benchmark - finance.yahoo.com/char...=^vay;range=my;compare...

But the disadvantage of equal weighting in the small cap space is the sheer numerosity of banks and other financials which results in an "overweighting" to financials by naive strategies - this is undesirable not because it differs from the S&P500 weighting but because it needlessly reduces statistical diversification. There is definitely room in the market for passively or quantitatively managed small cap funds that simultaneously work to optimize the Sortino ratio of the overall portfolio based on stastistical and/or industry diversification.