Other areas that ETFs have trail blazed includes hybrid, or rules-based indices. There is an active management element built right in to the index, and cost is much lower than that of a mutual fund. [PIMCO Total Return: ETF or Mutual fund Wrapper?]
Other indexing measures that are taking the basic ETF above and beyond are fundamental indexing, which involves index creation based on other factors rather than market cap weighting. Cash flow, or equal representation factors are utilized. “Relative Strength” is another strategy that uses proprietary screening methods such as “observable price signals.”
“How good is rules-based investing at generating alpha, and do people really view it as active?” Luke Montgomery, an analyst at Sanford C. Bernstein & Co said. “And there is still the educational hurdle of convincing investors that active ETFs aren’t an oxymoron.”
Tisha Guerrero contributed to this article.