Until now, exchange traded funds (ETFs) based on a fundamental indexing strategy have been associated with value. Today, WisdomTree launches the WisdomTree LargeCap Growth Fund (ROI), the first fundamentally weighted index for growth stocks to hit the market.

The fund is designed to track the WisdomTree LargeCap Growth Index, which measures the stock performance of about 300 large-cap growth companies in the United States. The initial weightings of each holding will be set annually based on earnings generated in the previous four fiscal quarters.

“People tend to pay too much for growth,” says Jeremy Schwartz, WisdomTree’s director of research. The index was formed with that idea in mind, giving investors growth exposure without the higher cost associated with such stocks. Growth stocks are typically defined as shares in a company whose earnings are expected to grow at an above-average rate, as compared with the rest of the market.

WisdomTree’s CEO Jonathan Steinberg cited the provider’s belief that growth’s historic underperformance might have more to do with how the indexes are constructed instead of the growth stocks themselves.

The index selects components based on four growth metrics, then weighting each component by its contribution to an income stream instead of its market value. The strategy aims to give investors the chance to get exposure to large-cap growth companies both globally and domestically, but at a reasonable price.

Technology is the largest sector in the index, with 30% of the weighting. Energy follows and 14% and financials make up 13%. The more earnings a company has, Schwartz says, the more weight they get in the index.

Tags: Large-Cap, ROI, Sector ETFs