When investing in an exchange traded fund (ETF), is "fundamental indexing" any more profitable than "market-capitalization indexing"? Scott Burns reports in The Boston Globe, Dimensional Funds Advisors (DFA), the original fundamental indexer, has returned 16% annually for the Small Cap Value fund and 12% annually on the Large Cap Value fund.

DFA has capitalized from fundamental indexing, will ETFs who implement fundamental indexing be able to produce similar results?  In the first 10 months, the PowerShares RAFI 1000 Index (PRF) has returned 15%.  In contrast the Vanguard 500 index (a typical market cap index) returned 12% for the same period.

Other ETFs are focusing in on fundamental indexing.  Over the summer WisdomTree launched 20 fundamental indexed ETFs that cover major markets all over the world.  As time goes by the performance of these ETFs will help answer the question of fundamental versus market cap indexing.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.