Richard Kang1

Interview: Luciano Siracusano, Director of Research for ETF Firm WisdomTree Asset Management

Luciano

My questions overlap with Matthew's and Vincenzo's above. Matthew asks about the FTSE RAFI indices. Can you give some idea on the results of your work and how they compare with other fundamental indexation methodologies like that of Research Affiliates or even what Vincenzo outlines in his question. Also, any idea on what the potential "spread" of fees between traditional market cap weighted index ETFs will be versus fundamental weighted ETFs? Clearly the strength of the traditional ETF's case is in its low cost approach most exemplified by Vanguard. Thanks. Richard Kang

ETF Cornucopia: Bring Them On!

Thanks Roger. As I've said this in the past: we have used and still use funds from Dimensional Fund Advisors as a means to implement non market cap weighted exposure to various broad asset classes. These are considered core positions and thus do not get traded often. The only related ETF we use is RSP which Rydex launched over 3 and a half years ago. RSP is a simple add on for fine tuning US equity exposure but even in that case we've had little reason to touch it. Its rise over the past few years has been strong even with significant bumps like we saw this past summer.

I've done quite a bit of research on fundamental indexation and its different variations. We only have Claymore up here in Canada (they track FTSE-RAFI), although there's nothing stopping us from investing with WisdomTree in the US. The currency risk (and our view on the USD) is one main reason why we try to use Canadian domiciled instruments wherever possible thus my leaning towards Claymore, if we decided to go ahead with fundamental indexation. However, I am not completely sold yet on fundamental indexation as a better solution than that of DFA funds. Actually, I don't see that much difference between the two. All of them (Rob Arnott, Jeremy Siegel, Fama/French who are advisors of DFA) are simply trying to provide a de-linking of classic market cap weighted indexing. The resulting portfolio composition and performance may not be significantly different in most cases. The fact that DFA has been doing this for decades provides me a greater level of comfort. The new offerings provide a different approach and intraday trading. Perhaps as the new ETFs in fundamental indexation increase in terms of diversity (coverage of more countries and industry sectors) as we've seen lately, it might attract more attention. I just don't think I'll be "in" in a significant manner. I guess I'm just at the watching and learning stage.