About three years ago, I was asked to construct an appropriately weighted financial index comprising approximately 50 online gaming companies.

The commissioning organisation gave me carte blanche to include stocks from anywhere in the world and each company's share value was converted into US dollars.

My first draft caused some consternation because at the time, several smaller shares were valued above $50, whereas prices in more well-known firms were below $6.

"Won't the higher priced companies carry more weight in our index?" the commissioning executive inquired.

I was a little taken aback as he was (and is) an intelligent guy who wondered whether his new index would give greater credence to relatively obscure gaming stocks than to the sector's behemoths, such as Ladbrokes.

"No," I replied, "because we'll base our index on market capitalisation. This means that more highly-valued companies will weigh more heavily upon it."

This anecdotal episode served to reinforce my belief that investors should steer clear of price-weighted indices such as the Dow Jones Industrial Average, or Japan's Nikkei, if they are searching for an indication of a market's macroeconomic performance.

Why? Higher-priced company stocks have more impact on the index than others, irrespective of the company's inherent market value.

So I was a little sceptical when last autumn, the venerable American financial newspaper, Barron's (owned by Dow Jones) launched the Barron's 400, aka the B400.

Its integral corporate components are selected from the Dow Jones Wilshire 5000 and based upon a rating awarded to them by MarketGrader, a US financial research firm.

Back-testing their index over the past decade, Barron's found that it would have surpassed standard equity indices during periods of rising and falling markets.

The selection procedure for entry into the B400 was complicated: MarketGrader examined 24 different fundamental factors related to growth, value, profitability, and cash flow, to determine each constituent company's grade on a scale from zero to 100.

Intriguingly, the grade is designed to reflect each stock's potential to outperform the market.

It is significant that constituent companies are equally weighted for it means that larger organisations cannot dominate, or overshadow smaller ones which may have better grades.

But instead of simply including the stocks with the 400 best scores, the MarketGrader methodology added several more parameters to its selection process which, it claims, guarantees a diversified portfolio.

For example, companies must have minimum float-adjusted market capitalisations of $250m, and at least a quarter of the index's companies must have market caps above $3bn.

Not surprisingly, the largest component companies are household names such as Exxon Mobil and Microsoft, but, according to Barron's, the companies showing greatest potential are comparative minnows: TBS International and Terra Nitrogen.

Once the back-testing was complete, Barron's found that two stocks, those of Abercrombie & Fitch and Harley-Davidson, have been part of the index for a decade.

There is no equivalent British index which evaluates shares according to their value, earnings growth, profitability or cash flow.

We will have to wait for such a measure to appear; in the meantime, the B400, now eight months old, represents a welcome break from price-weighted indices and one which momentum investors in particular might consider investigating.