[sfcguyus]

Sorry about the late reply.

Typically with an index fund, imagine a pie of the money. It's split up and invested into companies, but the allocation depends on the market cap of each company relative to the whole pot.

This means returns aren't based on the ability of companies to perform it depends on how big they are at the time. The bigger they are the more allocation of capital they get. Say you have a small company with a very high return rate on its investments, it would get a meagre rate of return compared to say Phillip Morris/Altria which has a lower rate of return, but is just big so it gets a bigger allocation.

You'd think its Darwinian but it has odd effects because what's big stays big, and it has nothing to do with the ability of the company to perform now, but what it did decades ago.