NEW YORK (TheStreet) -- The Diamond Hill Valuation-Weighted 500 ETF (DHVW)  offers a smart alternative to classic exchange-traded funds keyed to the S&P 500 because it is forward-looking and focuses on intrinsic value, said Ric Dillon, CEO of Diamond Hill Capital Management.

Dillon said traditional market cap-weighted indexes are based on current price and can overweight overvalued securities and underweight those that may be undervalued. Those other funds all tend to be backward looking.

He said Diamond Hill's ETF started with the 700 largest U.S.-listed companies and estimated the intrinsic value for each. It then brought the 500 largest of these companies into the fund and weighting them according to their intrinsic values.

Dillon said he began using the strategy in 1998, and in 2011, formed a limited partnership and put corporate money into the strategy. That investment was rolled in to this ETF that launched on May 12. 

The new fund targets both individual and institutional investors who use passive strategies.