Of the five top-selling ETFs for last month, three of them were non-market-cap weighted index trackers:
- WisdomTree Japan Hedged Equity ETF (NYSEArca: DXJ) $1.5 billion in inflows
- iShares MSCI USA Minimum Volatility (NYSEArca: USMV) $990 million in inflows
- PowerShares S&P 500 Low-Volatility (NYSEArca: SPLV) $924 million in inflows
“Transparent, strategy- or rules-based exchange-traded funds are successful because there is a need in the marketplace to reflect a particular view,” Kittsley says. “To me, this is the sweet spot around the thought of active ETFs,” he adds.
However, alternative-weighted indices are not going to continue to outperform traditional market-cap tools. Investors that are jumping into the fundamentally-weighted indices simply because of performance should consider how they work, rather than just what is working now. [Special Report: Alternative ETFs]
“There certainly has been a lot of discussion and interest in these alternative-weighted indexes, but I’m not so sure how much of the discussion is about market cap versus non-market cap than is around relative performance,” says Joel Dickson, principal in the investment strategy group at Vanguard.
Tisha Guerrero contributed to this article.