Fundamental Indexing Not as Successful as Touted?

Fundamental indexing has had the mutual fund excited about the investment idea, but early returns from one of the most major fundamental indexing shops, WisdomTree Investments, have not been stellar, according to Dow Jones.   Conventional index funds have been around for 30 years and aim to match market results, betting that they will be able to beat most stock-picking mutual funds over time.   Recently, a number of prominent index fund critics have argued that these funds are flawed because traditional indexes weight companies by market capitalization, or the total number of their outstanding shares, instead of fundamental measures such as company’s earnings or dividends.   Last month, WisdomTree gave a glimpse into how the 20 original ETFs actually performed since their one-year inception. The results showed that WisdomTree may have to wait awhile longer before putting conventional indexing company giants such as Barclays, State Street Corp. or Vanguard Group out of business.   However, the returns are preliminary, and ideally investors should look three to five years to make a sound judgment.   WisdomTree’s basic domestic style funds lagged ETFs that track conventional indexes from those three competitors basically across the board. The international funds performed better than domestic funds, outperforming other popular ETFs in a number of categories, but still returns were mixed.   For the domestic funds, results were the same whether WisdomTree funds were compared to competitors’ balanced funds or value-oriented funds. Critics of fundamental indexing commonly state that fundamental ETFs are similar to value funds.    The international funds were compared only to competitors balanced funds because there are few international value ETFs available to investors.   The company is “very, very pleased” with its one year results, said Bruce Lavine, president of WisdomTree. He emphasizes what he considers strong returns by a number of its international funds.   The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.