Exchange traded funds (ETFs) based on fundamental indexes are the evolution of building a better index fund. Typically, indexes track stocks weighted by market value, so they can end up holding the most expensive stocks. These are also the ones most vulnerable to sudden drops. The proliferation of ETFs during the past few years has seen the launch of a variety of ETFs based on fundamental indexes, reports Katie Benner of CNN These companies are weighted on the basis of dividends, earnings and other creative measures. The question remains, "Will these fundamental index funds be able to outperform their predecessors?" It’s too soon to tell, but there are quite a few out there to keep an eye on, such as the following:

  • PowerShares FTSE-RAFI U.S. 1000 (PRF)
  • WisdomTree Total Dividend (DTD)
  • WisdomTree Total Earnings (EXT)

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.