Investment strategies such as stock picking and bond investing are all in the red, so why not a fundamentally weighted indexed ETF?
Ron DeLegge for ETF Guide says fundamentally weighted ETFs try to beat the performance of a traditional index by selecting and weighting stocks according to various financial metrics such as earnings, dividends or book value. A traditional index such as the S&P 500 uses a market-cap weighted approach.
DeLegge points out that, so far, the performance has revealed a mixed bag: large-cap fundamental indexes are underperforming, while small- and mid-caps are slightly outperforming. Among sector funds, the performance also remains mixed.
When you choose a fundamental index there are two things to consider: 1) how it selects securities, and 2) how the securities are weighted.
Always be sure to understand what strategy your ETF follows. As we always say: know what you own.
Year-to-date, the S&P 500 is down 41.5%. In comparison:
- PowerShares FTSE RAFI Consumer Goods (PRFG), down 39.7% year-to-date
- PowerShares FTSE RAFI 1000 (PRF), down 44.3% year-to-date
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.