New exchange traded fund (ETF) launches are increasingly featuring underlying indexes that have been fundamentally weighted.

Two industry heavyweights in particular are big fans of the method, but they part ways on which way to do it, says Shefali Anand for the Wall Street Journal.

Jeremy Siegel, a finance professor at Wharton, and Rob Arnott, chairman of Research Affiliates, have both launched their own versions of how to do fundamental indexing better. They’ve created competing indexes, and ETFs have been launched to track them.

Siegel’s indexes use either dividends or earnings, while Arnott’s selects and weights companies based on cash flow, sales, book value and dividends.

In comparing performance, some of the funds are pretty much neck and neck and not much further apart than a percentage point or so. For example, the PowerShares FTSE RAFI US 1000 (PRF) and the WisdomTree Total Dividend Fund (DTD) are both down 5.1% year-to-date.

Some differences show up in the emerging market portfolios, though: WisdomTree Emerging Markets High-Yield Equity Fund (DEM) and the PowerShares FTSE RAFI Emerging Markets (PXH) are up 7.7% year-to-date and down 0.5% year-to-date, respectively.

Just as there’s a divide over fundamental and traditional indexing, now there’s intra-strategy arguing.

Why not just leave it for investors to decide? Some of them may want an ETF based on a dividend-weighted index, while others may feel that the P/E ratio is more important. There’s nothing wrong with having both options available.

Tags | Emerging Markets