Is fundamental indexing a better way to invest?
A quick gander at the industry-sector exchange-traded funds following these alternative indexing strategies reveals a mixed bag in performance.
In mid-2008, each of the seven PowerShares Fundamental sector ETFs that track FTSE RAFI indexes were underperforming Select Sector SPDRs ETFs that follow the same industry sectors but with a traditional market capitalization weighting.
The Sector SPDRs track the nine industry sectors within the S&P 500. Over the past year, based on data through end-June, just one FTSE RAFI sector ETF (PRFS) has managed to beat its traditional index counterpart.
The PowerShares Dynamic sector ETFs showed slightly better performance, but mixed results.
On a year-to-date basis, the Dynamic sector funds were outperforming corresponding Sector SPDRs in seven of nine sectors. However, over the year ending in June, four of nine Dynamic sector funds underperformed vs. competing Sector SPDRs that follow these same industries but with a traditional indexing bias.
The Dynamic series selects stocks using non-disclosed quantitative filters and then weights companies with a modified equal weight. The Dynamic ETFs follow indexes constructed by the American Stock Exchange.