Evenweighted

evenweighted refers to a type of financial index or portfolio strategy where all constituent assets are given equal importance or weight. This means that each security in the index has the same impact on the overall performance, regardless of its market capitalization, price, or any other individual characteristic. In a standard market-capitalization-weighted index, larger companies have a disproportionately larger influence on the index's movements. In contrast, an evenweighted approach ensures that smaller companies have the same influence as larger ones.

The construction of an evenweighted index involves calculating the value of each holding as if it were a fixed dollar amount. For example, if an index has 100 components, each component would represent 1% of the total index value. Rebalancing is a crucial aspect of evenweighted strategies. Periodically, typically quarterly or annually, the portfolio is adjusted to restore the equal weighting. This involves selling assets that have grown to represent more than their target weight and buying assets that have fallen below their target weight.

Evenweighted strategies are often employed to provide a different exposure to the market compared to capitalization-weighted indices. They can potentially offer greater diversification and reduce the concentration risk associated with a few large companies dominating the index. Investors may choose evenweighted approaches to gain exposure to smaller or mid-cap stocks that might otherwise be overshadowed in a cap-weighted index.