The latest flourish of exchange traded funds (ETFs) have been anything but plain vanilla- they include timeliness-seeking, fundamentally weighted, and dividend-focused types, among others. Methodologies behind these ETFs can be different but the same premise exists for all of their births: market-cap weighted indexes are inefficient because they get caught up in market bubbles. Matt Hougan of Seeking Alpha reviews whether or not these type of indexes can outperform the market.
Most of these ETFs have a short track record, many less than one-year, so it is too early to say if this is true. A test of the latest market meltdown of February-March gave a micro-test of their performance. In his test, Hougan found mixed results, when measuring against the SPDR (SPY). Overall he found a few of the alternatively-weighted ETFs performed well on a relative basis.
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.