Robert Fernholz

Journal Of Indexes

Diversity-Weighted Equity Indexes

Diversity weighting, the author’s alternative to capitalization weighting, should add 45 basis points per year to returns on average, by his calculation. After 1998, when the U.S. equity markets became concentrated in a small number of the largest companies to a historic degree, this method might have even greater potential value if there is regression toward the historical mean.