| Table 4. Value-Based Indexing vs. Fundamental-Based Indexing | ||||||||||
| Time 1: Both Stocks at Fair Value | ||||||||||
| Traditional (Market-Weighted) Index | Fundamental-Weighted Index | |||||||||
| Price ($) |
No. Shares (Millions) | Market Value ($, Millions) | Holding (%) | No. Shares (Millions) | Market Value ($, Millions) | Holding (%) | ||||
| Stock A | 12 | 500 | 6,000 | 60 | 500 | 6,000 | 60 | |||
| Stock B | 10 | 400 | 4,000 | 40 | 400 | 4,000 | 40 | |||
| Portfolio | 10,000 | 10,000 | ||||||||
| Time 2: Stock A Becomes "Overvalued" and Fundamental-Weighted Index Is Rebalanced | ||||||||||
| Traditional (Market-Weighted) Index | Fundamental-Weighted Index | |||||||||
| Price ($) |
No. Shares (Millions) | Market Value ($, Millions) | Holding (%) | No. Shares (Millions) | Market Value ($, Millions) | Holding (%) | ||||
| Stock A | 15 | 500 | 7,500 | 65.2 | 460 | 6,900 | 60 | |||
| Stock B | 10 | 400 | 4,000 | 34.8 | 460 | 4,600 | 40 | |||
| Portfolio | 11,500 | 11,500 | ||||||||
| Time 3: Both Stocks Return to Fair Value (Before Fundamental Index Is Rebalanced) | ||||||||||
| Traditional (Market-Weighted) Index | Fundamental-Weighted Index | |||||||||
| Price ($) |
No. Shares (Millions) | Market Value ($, Millions) | Holding (%) | No. Shares (Millions) | Market Value ($, Millions) | Holding (%) | ||||
| Stock A | 12 | 500 | 6,000 | 60 | 460 | 5,520 | 54.5 | |||
| Stock B | 10 | 400 | 4,000 | 40 | 460 | 4,600 | 45.5 | |||
| Portfolio | 10,000 | 10,120 | ||||||||