Among the nontraditional enhanced, smart-beta index ETFs, Waldron breaks it down further into nontraditional beta and nontraditional alpha methodologies. Nontraditional beta indices typically track the same stocks as the benchmark index, except constituents use al alternative measure of size to weight. Nontraditional alpha is explained as an ETF that track indices designed to seek risk-adjusted excess returns. [Jaffe Weighs in on Schwab Fundamental ETFs]
“These indexes mimic the approach and behavior of active managers in many ways by applying certain rules relating to when to buy and when to sell,” Waldron said.
“Stocks with a better price-to-cash-flow valuation historically outperformed those with a worse price-to-cash-flow valuation,” he added. “The fact is, fundamental valuation matters.”
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.