Fundamentally weighted vs Factor based weighted index

CFA Level III Equities
#1

What is the actual difference between the two?

I just did a problem and I thought it is for sure fundamentally weighted, but the answer says its factor based

Which of the following index methodologies is most appropriate to use as a benchmark for the overall stock portfolio described in Pool 2?

Here is the problem.

The mandate of Pool 2 also consists of two primary goals:

  • A goal that the overall stock portfolio should consist of mature companies that have stable net incomes and high dividend yields
  • A goal of expressing strong views on many major corporate issues through proxy voting
  1. Factor based
  2. Capitalization weighted
  3. Fundamentally weighted
#3

Fundamental generally means micro characteristics of a given firm: sales, gross profit, net profit, cash flow, P/E ratio, and so on.

Factor generally means characteristics of the overall economy – GDP, unemployment, interest rates, and so on – or macro characteristics of a given firm or its stock: large or small, growth or value, liquid or illiquid, and so on.

The first bullet point is definitely factor-based: they want value, not growth.

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#4

Fundamental weigh also has value tilt = is it only coz the first bullet point indicates portfolio screening for value (macro, not company specific), we go for factor based?

#5

2nd point tilts my answer towards factor based index. Fundamentally is based on company’s individual measures such as GP margin %, NP % etc.

#6

I really can’t make a distinction between the two not even after reading all the comments. I mean it says “mature companies that have stable net incomes and high dividend yields”… so they all lead me to choose fundamentals