New style of ETF draws some fire
Robert Arnott, chairman of Research Affiliates, is bent on popularizing what he sees as a better way to index stocks and thus create better ETFs. Research Affiliates has partnered with the FTSE Group to create indexes based not on market capitalization, but on other metrics, such as income, cash flow, revenue, dividends and the like. Arnott, former editor of the respected Financial Analysts Journal, argues that the big flaw with cap-weighted indexes is that they end up rewarding "lofty valuations." Weighting by other criteria yields indexes that better mirror the economy or a sector. Invesco launched such a fund in 2005. Other companies, such as Charles Schwab, have followed suit. There are some detractors, notably John Bogle himself.
- here's an article from MarketWatch