Six new exchange-traded funds from SPA ETFs, a British upstart, offer U.S. investors a new twist on fundamental indexing.

Unlike traditional indices, which weight companies according to their market capitalization, fundamental indexing weights companies by other kinds of criteria such as earnings, revenue or dividends. Proponents say these benchmarks capture better returns with lower volatility.

SPA ETFs' MarketGrader family of ETFs differ from some other fundamentally indexed ETFs in that the constituent stocks are all equally weighted.

MarketGrader

, an index house in Coral Gables, Fla., applies a filter of 24 fundamental factors in four key areas -- growth, value, profitability and cash flow -- over the universe of 5,700 U.S. listed companies. Each company gets a grade and the top-graded companies land in an index.

All six funds debuted on the American Stock Exchange last week. The

MarketGrader 40

(SFV)

,

MarketGrader 100

(SIH)

and

MarketGrader 200

(SNB)

are core indices based on baskets of top-rated stocks of companies of all sizes.

The

MarketGrader Large Cap

(SZG)

,

MarketGrader MidCap

(SVD)

and

MarketGrader Small Cap

(SSK)

hold the 100 top-graded stocks of their respective market-cap categories.

The new ETFs are making waves in the already controversial field of fundamental indexing, thanks to MarketGrader's claim that its flagship MarketGrader 40 Index has outperformed the

TheStreet Recommends

S&P 500

by 15.6% percentage points on an annualized basis since the beginning of 2003.

That's a pretty bold claim.

Even Research Affiliates Fundamental Index, or RAFI, the benchmark for the

PowerShares FTSE RAFI US 1000 Portfolio

(UUP) - Get Report

, only claims to be able to beat the S&P 500 by 2% percentage points a year. RAFI and WisdomTree are currently the leading providers of fundamentally weighted indices for ETFs in the U.S.

The MarketGrader 40 is the only index with a track history. Since its inception in April 2003, it's up 211% vs. the S&P 500's 33% gain over the same period. MarketGrader says backtesting the other five indexes indicates they would have beaten the S&P 500 by about 10% percentage points or more on an annualized basis. The MidCap and SmallCap beat their S&P benchmarks, too. But backdated results aren't the same as actual results.

Tom Roseen, senior analyst at fund research house Lipper, says these results are plausible, depending on the types of companies in the indices. When you consider that small-cap stocks have outperformed the large-caps that make up the S&P 500 in recent years, it's not a big stretch to say that indices comprised of smaller stocks would have outperformed this benchmark.

The MarketGrader 40 index is comprised of 25% large-cap stocks, 25% small-cap stocks and 50% mid caps. It's up 9.86% this year through Oct. 5, and a cumulative 60.45% for the previous three years. Over the same period, the S&P 500 gained 8.78% and 35.91, respectively.

"You have to compare apples to apples," says Roseen.

On the other hand, backtesting indicates that the MarketGrader Large Cap ETF, which holds 100 stocks, would have returned 20% year-to-date through Oct. 5, and a cumulative 68.85% over the past three years.

Roseen says this is a more impressive claim. "If they are cherry picking the best-of-the-best, it might be something to follow," he says, adding that MarketGrader's methodology sounds "reasonable."

As impressive as these returns are, the MarketGrader ETFs' expenses are some of the highest in the industry. All six have an expense ratio of 0.85%. Of course, what you are paying for is essentially a form of active management. Some of the indices rebalance quarterly and some semi-annually.

"The bottom line is performance," says Daniel Freedman, managing director of SPA ETFs, which stands for . "We have a strong reason to believe that we will outperform RAFI and WisdomTree, and in the end that's the most important aspect for investors."

SPA says it plans to launch four new ETFs in each quarter of 2008.

SPA is a sister company to London & Capital, a 21-year-old British money manager with $3.5 billion in assets under management. Founded just this year, SPA doesn't have much of a track record, even in the U.K.. Only last month, it launched its first ETFs on the London Stock Exchange. These funds track the same indices as its U.S. offerings, and as the first fundamentally based ETFs in that market, they caused a bit of a stir.

So why would an upstart still gaining its footing in its home market cross want to make a push into the extremely competitive and congested U.S. market? The U.S. is the largest market, in terms of investment dollars. Scott Ebner, senior vice president of the Amex's ETF Marketplace, points out that the global ETF industry is around $800 billion and nearly $600 billion of it is here in the U.S. "If you are going to be in the ETF business globally with the capability to compete in the U.S., why wouldn't you?" he says.

Arlene Reyes, chief operating officer of ExchangeTradedFunds.com, a provider of information regarding ETF products around the globe, says other foreign ETF providers are headed toward our shores. "I think (the fact that) the Europeans (are) coming here is an indication that the ETF industry is definitely ready for global expansion," she says. "Where these products can go won't be defined by borders anymore. This shows they can go anywhere."

Indeed,

Barclays Global Investors

, sponsor of the iShares family of ETFs, and

State Street

have already launched funds in Europe. Meanwhile, France's largest ETF provider, Lyxor Asset Management, a subsidiary of the French bank

Societe Generale

is said to be getting ready to launch ETFs in the U.S.