ETF performance: Weight isn’t everything

When it comes to choosing which ETF is right for you, one of the top considerations of many investors is how exactly the fund’s underlying index is constructed. Selection and weighting methodologies vary drastically from fund to fund, with the differences often making significant impacts on bottom line returns. Traditional market capitalization weightings were once the only game in town, but in recent years alternative-weighting methodologies have become more popular among investors who find flaws in a strategy that gives the most weight to the biggest companies. And while there are numerous alternative methodologies, the most popular among investors is perhaps the equal-weighted approach, which seeks to mitigate the downside effects of a fund being dependent on only a handful of stocks. A comparison of traditional cap-weighted and equal-weighted ETFs reveals some factors investors should be mindful of.

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