When it comes to compiling ETFs and index funds, market-cap weighting is the standard approach—starting with the S&P 500 and extending to many major benchmarks and smaller indices.
Bigger companies have greater representation, which is all well and good when market moves are dictated by a small number of mega-cap stocks and those stocks are trending upward. However, risk-conscious investors may be leery when it comes to concentrating too much of their assets in a handful of giant companies—and even stalwart S&P funds miss out on outsized wins down the portfolio when smaller stocks take off on a rally.
