What is equal and market cap weightings?

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An equally weighted ETF owns the exact same amount of each company. For instance let us assume that we are buying a top 40 index that is equally weighted. If each share is to carry equal weight, each share will make up 2.5% of the ETF. The size, or market capitalisation (market cap) of a company is determined by multiplying the amount of shares in a company by the cost per share. This gives us the total amount that the company is worth.

In comparison to equal weighting, market cap weighted indexes are weighted based on the company’s sizes. For this reason, massive companies like Naspers dominate market cap weighted indexes. If Naspers is 25% of the size of the Johannesburg Stock Exchange (JSE) Top 40, it will make up 25% of the Top 40 index.