Recently, more fund sponsors have been adopting enhanced, “smart” or “intelligent” indexing methodologies that customize the underlying index. While the ETFs are passive in nature, the underlying index would follow strategies similar to actively managed styles.
“ETFs have been so successful that people have engineered ETFs that don’t follow the same functions as the original ones,” Peterson added. “Those original ETFs were broad, stock-based index-traded funds that were really efficient ways to gain core exposure to core markets.”
The changes are not bad, but the investor should take the time to understand an investment’s objective before diving in.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.