“I am concerned about the financial impact to people who might not understand their exposures,” Flanagan told FT.
Related: How to Determine if Smart Beta ETFs Fit in Your Portfolio
Nevertheless, these market cap-weighted ETFs still help investors access broader swathes of the market through a single investment vehicle.
“The claims about concentration are really unfounded,” Matthew Bartolini of State Street’s ETF unit, told FT. “You are definitely going to have a skew to the larger cap companies but you still have another 400 odd stocks that you have exposure to as well.”
Alternatively, investors may also look to smart beta or alternatively index-based ETFs that may equally weight holdings or weight components based on fundamental screens, like sales or profits, as a better way to diversify, such as those offered by Invesco PowerShares and others.
For more information on ETFs, visit our ETF 101 category.