Market Cap Weighted Allocation – How It Works in Fincanva

What It Is

Market Cap Weighted allocation assigns capital to assets or models based on their market capitalization. Larger entities receive a proportionally larger share of capital, reflecting their size and weight in the broader market.

What It Does in Fincanva

• Logic: Capital is distributed in proportion to each asset's or model’s market cap relative to the total market cap of all selected components

• Simulation Behavior: As market capitalizations evolve over time, the allocation adjusts at each rebalance to maintain the proportional exposure

• Underlying Assumption: Larger companies/models represent a more stable and efficient allocation due to broader market consensus

Pros

• Mimics popular index methodologies like the S&P 500

• Requires less frequent rebalancing than some optimization-based methods

• Aligns with market consensus and passive investing strategies

• Simple and widely understood allocation method

Cons

• Can lead to concentration in large-cap assets or models

• Underweights smaller or emerging assets with high growth potential

• May not reflect individual risk-return preferences

• Less customizable for strategy-specific goals

Where You Can Use It

• Portfolios: Not available

• Models: Yes

When to Use It

• Ideal when replicating or benchmarking against traditional indices

• Best for passive or semi-passive strategies

• Useful when aiming for exposure to the most influential market players

• Suitable for reducing subjective bias in allocation

Example
If Asset A has a market cap of $200 billion, Asset B $100 billion, and Asset C $50 billion, and your model allocates $100,000 total:

Asset A receives 57.14% ($57,140)
Asset B receives 28.57% ($28,570)
Asset C receives 14.29% ($14,290)

• Portfolios: Not available

• Models: Available on Advanced, Ultimate, and Professional plans