FlyingCircus wrote:

cap-weighted index funds ... have become the "black hole" of the market, sucking in increasing amounts of money from other investment options.


If there is a perennial institutional "buy" under cap-weighted large cap funds in particular, might this mean that the anticipated outperformance of equal-weight alternatives is mistaken, however true it may have been in the past?

The perennial institutional "buy" is not new, but it has gotten larger with the passage of time. At first glance it seems reasonable that it might gradually narrow or even eliminate the advantage of equal-weight alternatives, at least in the diversified large-cap space represented by SPY and QQQ.

I have found that the first glance is not to be trusted when it comes to investing, however. The superiority of the EW fund is that it avoids the often brutal mean reversion that routinely befalls the overbought behemoths at the top of cap-weighted alternatives. This must remain true regardless. But off hand I can see no reason why consistent buying pressure that is indifferent to this advantage might not erode it on the margin, to the point where it isn't worth pursuing.

Baltassar