A.I.M. Users Bulletin Board

[AIMster]

WisdomTree introduced some International Sector ETFs about 2-3 months ago. It seems to me that this might be a different way of AIMing the international markets and capturing some of that volatility.

Hi, Ray,

Thanks for the posting. There seems to be a growing interest in creating index funds using some other measure than pure market capitalization to weight the different holdings in the given fund. In the S&P 500 for example, SPY is the 'classic' S&P 500 ETF using capitalization weighting. RSP, on the other hand is a fund that equally-weights all of the S&P 500.

Stock charts comparison here:

http://stockcharts.com/charts/performance/perf.html?SPY,RSP

Note in the short term that the two tend to track pretty closely together - however, extend the time to the full range from 1999 through 2006 and RSP is a clear winner.

It might be the Wisdom Tree ones, or possibly PowerShares that are looking to create indices that are fundamentally weighted so that presumably the "strongest" companies in a given universe of stocks are most represented.

The only drawback to such a thing I would think might be increased activity in a given fund as it seeks to readjust the holdings - the more frequently the revision the more buying-and-selling which could impact fund performance. An index that is modelled on one static aspect such as capitalization, with perhaps annual revision for reweighting and/or changing companies in or out of a given index might be more efficient. I think these are in some ways attempting to blur the distinction between active and passive investing management. Passive, but., you might say.

Thanks for the lead.

Best,

AIMster