Alternative indices possess an array of differing weighting schemes that are in contrast to benchmark market capitalization weighted indexes. These alternative indexes include the following:
- Dividend-weighted indexes weigh securities according to dividend weights.
- Equal-weighted indexes weigh its securities with equal, not market capitalization, weightings.
- Fundamental indexes weigh securities according to valuation and dividend weights.
- Inverse and leveraged indexes employ derivatives or leverage to a capitalization weighted stock index.
- Social responsibility indexes retain market capitalization weighting methodologies, but apply ethics based screens for security selection.
Index strategy boxes
Benchmark Index Strategy Box
A useful tool for evaluating both benchmark and alternative indices (and the funds tracking these indices) is the Index Strategy Box. Created and developed by Richard A. Ferri, CFA of Portfolio Solutions, LLC, in late 2007 , the Index strategy box categorizes an index according to the methodology ("rules") used for investment selection. An index is categorized by its security selection and security weighting rules. The result is a 3 x 3 grid.
Each alternative index page will show where the index falls in the Index Strategy Box.
Index strategy box background and category breakdown are fully described in Indexing in the 21st Century: Portfolio Solutions Inc.. Index strategy boxes are used extensively at etfguide  and are being used by Morningstar, where they are termed Index Strategy Maps. 
Index fund characteristics
|The popularity of index funds has caused much competition among fund providers. Investors are cautioned to closely review if a product is a traditional index fund based on a benchmark index, or, a product that simply follows an alternative proprietary benchmark. Please ask in the forum for advice.|
According to the CFA Institute, securities 'index' should have the following characteristics:
- Simple and objective selection criteria: There should be a clear set of rules governing the inclusion of bonds, equities, or markets in an index, and investors should be able to forecast and agree on changes in composition of the securities in an index.
- Comprehensive: The index should include all opportunities that are realistically available to be purchased by all market participants under normal market conditions. Both new and existing securities should have frequent pricing available so the index level can be accurately measured.
- Replicable: The total returns reported for an index should be replicable by market participants. Over time, an index must represent a realistic baseline strategy that a passive investor could have followed. Accordingly, information about index composition and historical returns should be readily available. It must also be fair to investment managers who are measured against it, and to sponsors who pay fees or award management assignments based on performance relative to it.
- Stability: The index should not change composition frequently, and all changes should be easily understood and highly predictable. The index should not be subject to opinions about which bonds or equities to include on any particular day. Conversely, index composition is expected to change occasionally to ensure that it accurately reflects the structure of the market. A key virtue of an index is to provide a passive benchmark. As such, investors should not be forced to execute a significant number of transactions just to keep pace.
- Relevance: The index should be relevant to investors. At a minimum, it should track those markets and market segments of most interest to investors.
- Barriers to entry: The markets or market segments included in an index should not contain significant barriers to entry. This guideline is especially applicable to an international index in which an included country may discourage foreign ownership of its bonds or participation in its equity market.
- Expenses: In the normal course of investing, expenses related to withholding tax, safekeeping, and transactions are incurred. For a market or market segment to be included, these ancillary expenses should be well understood by market participants and should not be excessive. For example, if expenses are unpredictable or inconsistently applied, an index cannot hope to fairly measure market performance.
- Indexing in the 21st Century: Portfolio Solutions Inc.
- ETF Guide Index Strategy Box FAQS
- Buying The Market Isn’t As Simple As It Seems, forum discussion.
- Organizing the ETF Universe with Index Strategy Boxes
- How To Find Your Way Through The ETF Maze The Indexer, Rick Ferri, Forbes, 8/26/10.
- Is Fundamental Indexing superior to Cap Weighted indexing?