Fundamentally Weighted Index

Demystifying Fundamentally Weighted Indexes: A Comprehensive Guide

In the realm of equity indices, fundamentally weighted indexes stand as a unique breed, departing from the traditional market capitalization-based selection approach. Dive into the intricacies of fundamentally weighted indexes, their operational mechanisms, and their significance in the world of passive investing.

Unraveling Fundamentally Weighted Indexes

Understanding the Basics

Explore the concept of fundamentally weighted indexes, also known as fundamental indexes, and their departure from market capitalization-driven methodologies. Learn how these indexes utilize fundamental criteria such as revenue, dividend rates, earnings, or book value to select components.

Operational Dynamics

Delve into the evolution of fundamentally weighted indexes, tracing their rise in prominence since their inception in 2004 with Research Affiliates. Understand the driving forces behind the surge in interest and adoption of these indexes among fund companies and passive investors.

Exploring Fundamentally Weighted Index Mechanisms

Customized Tracker Funds

Uncover the role of fundamentally weighted indexes in the development of customized tracker funds, which aim to replicate specific investment aspects of the market. Learn how fund companies leverage customized fundamental indexes to reduce costs and enhance portfolio efficiency.

Potential Benefits

Evaluate the purported benefits of fundamentally weighted indexes, including the potential for higher returns based on aggregate fundamental measures. Discover how these indexes utilize a diverse range of fundamental factors to identify top-performing investments over time.

Case Studies: FTSE RAFI and WisdomTree Offerings

FTSE RAFI Index

Examine the collaboration between the Financial Times Stock Exchange (FTSE) and Research Affiliates in developing fundamentally weighted indexes. Explore examples such as the FTSE RAFI US 1000 Index and associated ETFs like the Invesco FTSE RAFI U.S. 1000 ETF.

WisdomTree Portfolio

Discover WisdomTree's pioneering efforts in offering fundamentally weighted proprietary indexes, exemplified by ETFs like the WisdomTree U.S. Quality Dividend Growth Fund (DGRW) and WisdomTree U.S. Small-Cap Quality Dividend Growth Fund (DGRS).

Making Informed Investment Choices

Considerations for Investors

Gain insights into factors investors should consider when evaluating fundamentally weighted indexes, including performance, fees, and alignment with investment objectives. Compare these indexes against traditional market capitalization-based benchmarks to make informed decisions.