With a choppy start to 2014, it is already painfully clear that just buying ‘regular’ indexes might not be a good strategy this year. Broad markets are tumbling to begin January thanks to worries about jobs and the taper in the U.S., and emerging market woes abroad.
But for investors seeking to still stay invested in broad markets, and are looking for a bit more scrutiny in their portfolios, the rise of ‘alternative’ indexes might be a good option. Funds based on these benchmarks generally cost a bit more, but look to select securities based on something other than just pure market cap weighting.
This approach can give a completely different portfolio and it can select better stocks. This may be especially true when the indexes look at companies based on fundamental factors such as value, growth, or ROE.
For investors looking to get in on this market, there are two solid options that are definitely worth considering, the iShares MSCI US Quality Factor ETF (NYSEARCA:QUAL) and the Barron’s 400 ETF (NYSEARCA:BFOR). Both of these cost a bit more than an investment in a product like SPY, but they have easily beaten out that key benchmark since their inception.
And if markets stay choppy, both QUAL and BFOR could prove their worth again in 2014, making them worth a closer look by investors seeking a broad play that goes beyond ‘regular’ market cap weighting (also see Alternative ETF Weighting Methodologies 101).
For more on these ETFs and the rise of ‘alternative’ indexing, make sure to watch our short video on the subject below:
This article is brought to you courtesy of Neena Mishra From Zacks.