That's actually an interesting idea, except that you have no idea of knowing whether a company is worth very little because the market undervalues it, because it's intrinsically a small company, or because it's about to go bankrupt. An inverted valuation-weighted fund would put that vast majority of assets into stocks that are worth just above nothing. I suspect that a good portion of these are companies that are about to go bankrupt - probably a much bigger proportion than the ones that are small and about to take off, or the ones that are small and overlooked. Investing in companies that are about to go bankrupt isn't really a sound strategy.

The ultimate problem is that stock market returns are a future-prediction problem. When a stock does better than expected, it goes up. When it does worse than expected, it goes down. Doing this reliably includes both having a complete understanding of the rest of the market's expectations and knowledge of the future, which is pretty challenging.

I think that behavioral-finance approaches, which gauge the emotions of your fellow investors, have actually been shown to work pretty well. "Be fearful when others are greedy, and greedy when others are fearful." Hard to put that in an index, though.

> An inverted valuation-weighted fund would put that vast majority of assets into stocks that are worth just above nothing. I suspect that a good portion of these are companies that are about to go bankrupt - probably a much bigger proportion than the ones that are small and about to take off, or the ones that are small and overlooked. Investing in companies that are about to go bankrupt isn't really a sound strategy.

I don't know, isn't that what the junk-bonds guys did in the '80s, and more recent value investors? I could believe that the market still undervalues companies that are about to go bankrupt (but might not).