The debate about fundamental or market-cap weighted indexes and exchange traded funds (ETFs) continues. Roger Nusbaum for TheStreet.com takes a look at two of WisdomTree’s ETFs, which are fundamentally weighted either by earnings or dividends. They don’t follow the S&P 500, but Nusbaum compares them because the correlation is greater than 0.98.

WisdomTree Total Earnings Fund (EXT) is weighted by earnings, so the more money earned by the company, the larger the weight. This gives the ETF a value bent. This slight tilt can give it a lag, due to the large-cap growth stocks having outperformed by 5% this year.

WisdomTree High-Yielding Equity Fund (DHS) is a broad-based dividend-weighted ETF, and weights heavily to the financial sector. Finance accounts for 35.41% of DHS, with 18.66% for the S&P 500. This has obviously cut into performance due to the current mortgage crisis.

When judging ETFs it is necessary to consider the potential stumbling blocks and understanding what impact it could have. All indexing will lead to high and low points. As an investor you should know what your financial goals are and how an ETF may or may not fit into your portfolio.

Tags: Dividend ETFs, Sector ETFs