Market-Capitalization Weighted Index
An index where each component's weight is proportional to its market capitalization.
What is Cap-Weighted Index?
A market-capitalization weighted index assigns each component a weight proportional to its total market value (share price × shares outstanding). Larger companies have greater influence on the index's performance. The S&P 500, MSCI World, and Nasdaq-100 are cap-weighted. This approach reflects the actual investable opportunity set — larger companies represent more of the investable market. Critics argue cap-weighting over-concentrates indexes in recently expensive stocks. Alternatives include equal-weighted, fundamentally weighted, and factor-weighted indexes.
Example
By early 2024, the top 10 stocks in the S&P 500 (including Apple, Microsoft, Nvidia, Amazon) represented over 33% of the index weight — meaning a portfolio tracking the S&P 500 has roughly one-third of its value in just 10 of 500 companies.