Earlier quoted context omitted.
>If you have $100B, say, you can't put it in a stock that's currently valued at $1B. But if you have $1000, you don't have that constraint. Your argument is that there is a mispriced security somewhere that can be bought at a low price. There is currently only 1B$ of it available and so the professional manager with 100B$ to spend just doesn't bother to pick up that money. But you with just 1000$ can do it instead. W…
Every cap weighted fund has a cutoff where it omits companies that are too small. But even the stocks that are barely large enough to include don't contribute much to returns. I don't think the small cap stock is "mispriced". Rather, it has a different value for different investors, and the market price is a compromise. That means different investors should probably have a different amount of it in a portfolio. It's…
Of course it's just fine to have an index fund that's weighted towards certain types of stock, e.g. there's the S&P 500, then various "woldwide" funds, EU-weighted funds etc. The risks & benefits of those are well understood. Nobody argues that different types of index funds shouldn't exist.
Similarly, there's funds that cater to specific regulations, e.g. investing heavily in "green" stocks which may be subsidized by the government, or avoiding certain taxes (e.g. lower turnover for lower capital gains).
Both of those are categorically different from supposing that you know better than other people that tech stock in 2017 is overvalued, and trying to move away from that in favor of something else. Now you're making an active investment move which history shows you're more likely to lose on as gain anything on.