Broad, fundamental indexes that exchange traded funds (ETFs) track are an alternative to market-cap weighted indexes. Fundamental indexes base stocks on characteristics such as book value, cash flow, sales and/or dividends, Seeking Alpha reports.
The market-cap weighted indexes can over-represent over-valued stocks because of the stocks’ large market value. These indexes are easier to manage because they adjust with market shares and the ETFs have lower expense ratios. Fundamental index ETFs may have a higher turnover because of underlying holdings’ price changes.
While ETFs provide the comfort of transparency, they also offer alternative means of investing. Know and understand what’s in your ETFs and why, so you can have fun with your fundamental index ETFs today!
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.