While innovation continues to help the industry grow, exchange traded funds have been founded on traditional market cap-weighted indexing methodologies, which continue to remain popular picks among financial advisors and investors.
ETF Trends publisher Tom Lydon spoke with Rolf Agather, Managing Director of North America Research at FTSE Russell, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about traditional cap-weighted indices.
“It’s actually been 30 years since Russell created the growth and value indexes, which by a lot of people are considered some of the early forms of smart beta,” Agather said.
While smart beta has been all the rage in recent years, we can’t forget about the old guard that includes traditional market cap-weighted index funds, which remain steadfast core positions in many investment portfolios.
“They’re still very suitable investments,” Agather said. “As you say, the majority of assets and flows, even, are still in some of the early products that were created. Lots of liquidity and, again, low cost.”
For example, some of the most popular ETFs include FTSE index-based options like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), iShares Russell 1000 Value ETF (NYSEArca: IWD) and iShares Russell 2000 ETF (NYSEArca: IWM).
VWO, which has $70.4 billion in assets under management and a cheap 0.14% expense ratio, tries to reflect the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. The underlying portfolio includes access to developing market stocks, along with exposure to China’s domestic A-share market, which the benchmark MSCI Emerging Markets Index has yet to include.
IWD, which has $36.3 billion in assets and a 0.20% expense ratio, focuses on the Russell 1000 Value Index. The underlying index provides exposure to the large-cap segment of the U.S. markets, but only those thought to be undervalued by the market relative to comparable companies.
Lastly, IWM, which has $35.7 billion in assets and a 0.20% expense ratio, tries to reflect the performance of the widely observed Russell 2000 Index. The benchmark is a popular gauge of the small-cap segment of the U.S. markets.