Exchange traded fund providers have focused in on alternative index weighting methods as existing products have been on a winning streak. Non-market cap-weighted ETFs have accounted for about $31.4 billion assets year-to-date, according to BlackRock data.
“ETFs are not just about passive exposures,” says Dodd Kittsley, head of global ETP market trends research at BlackRock. “Whether you define it as a strategy-based or smart index, I think the growth potential is enormous.” [WisdomTree ETF Assets Grow as Shares Rally 74%]
ETFs that focus on low-volatility stocks, equal-weight methods or other factors other than market capitalization have proven their potential based on the $31.4 billion in inflows year-to-date. ETF sponsors are aware that alternative weighting methods have been able to capture assets and see this as an area they can set themselves apart, reports Jackie Noblett for Ignites. [Low-Volatility ETFs Still Thriving as Market Wobbles]
Index diversification is like a new frontier in the ETF industry. Many of the cap-weighted indices are top heavy, and dominated by a few stocks, reports Scott Blythe for Advisor.CA.Within a market-cap index, there can be a huge correlation between mispricing and overweighting, Jacques Lussier, former chief investment strategist at Desjardins Financial, said.