As the markets continue on their record trek, investors may consider alternatives to traditional cap-weighted index investments to diminish exposure to overpriced companies, such as a volatility-weighted exchange traded fund strategy.

Mannik S. Dhillon, Head of Investment Solutions, Product, and Strategy with Victory Capital, told ETF Trends in a call. that investors should take on broader exposure rather than those heavy cap-weighted indices since you’re left doubling down on the most expensive stocks.

Traditional capitalization-weighted index funds weight holdings based on their market cap, so companies that have done well also make up a larger weight in the indices, which leaves investors overexposed to yesterday’s outperformers.

Alternative, Dhillon argued that investors should look to alternative index-based ETFs, like the VictoryShares’ line of Volatility-Weighted ETFs. The ETFs “add new money without doubling down on the most expensive stocks.”

For instance, Dhillon pointed to the VictoryShares Emerging Market Volatility Wtd ETF (NasdaqGM: CEZ) as a value play in the current market environment. After the multi-year rally in developed markets, the emerging market equities have been left in the dust and now trade at very cheap valuations – CEZ shows a 13.3 price-to-earnings ratio and a 1.5 price-to-book, whereas the S&P 500 is trading at a 18.7 P/E and a 2.7 P/B.

As a way to diversify potential risks when investing in various markets, notably the emerging markets, the VictoryShares suite is designed to track its proprietary CEMP indexes.

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