Fundamental indices screen and weight component stocks based on a number of factors, such as adjusted sales, cash flow, dividends and buybacks. Additionally, these enhanced indexing methodologies typically include a heavier tilt toward value stocks. Alternative weighting styles can be found in indices developed by Rob Arnott’s Research Affiliates and WisdomTree. [PowerShares Fundamentally Weighted ETFs Hit $5 Billion]
With the proliferation of enhanced, intelligent, smart-beta, fundamental or whatever else kind of alternative index ETFs, more financial experts are advising investors to take a balanced approach to an investment portfolio weightings. The various index-based ETFs perform differently across market cycles, helping investors diversify with uncorrelated assets. [Alternative Weighted Index ETFs Attract Heavy Inflows: Schwab]
“The world is not black and white when it comes to indexing,” Marie Chandoha, president of Charles Schwab Investment Management, said in the article. “We believe the systematic approach inherent in fundamentally weighted methodologies, when used alongside cap-weighted strategies, enables investors to diversify and balance their exposure.” [Schwab to Launch Its First Fundamentally Weighted ETFs]
For more information on ETF indexing, visit our indexing category.
Max Chen contributed to this article.