While fundamental indexing is arguably thriving and no longer an obscure concept to people in the industry, it is still struggling to find its footing against other, more entrenched traditional methodology styles in the United States. That may not be the case overseas.

FTSE recently introduced the FTSE/JSE RAFI 40 Index in South Africa, a fundamentally weighted index of 40 stocks. South Africa already has the FTSE/JSE Top 40, an index that selects and weights its components based on market capitalization; it tracks the country's 40 largest companies by market capitalization and is one of the country's most widely quoted indexes. However, the new fundamentally weighted index is being greeted with enthusiasm—at its launch, there were already three products based on the index in development, among them an exchange-traded fund.

Satrix Managers (Pty) Ltd. already has several ETFs trading on the Johannesburg Stock Exchange, and it is planning to launch one based on the FTSE/JSE RAFI 40 Index. Plexus Asset Management is operating an active fund based on the index, and Umbono Fund Managers will launch an index fund.

A brand-new index with three products based on it in a market as small as South Africa seems like a pretty big deal. So why is everyone so excited?

Well, the index represents a new approach to a small market. Domestic investors are always looking for innovative ways of looking at their home market. The RAFI methodology, of course, evaluates stocks according to sales, cash flow, book value and dividends, and the "size" of a company is a reference to its economic footprint as opposed to its market capitalization. The new index will include the 40 largest companies in terms of their economic footprints.

The introduction of fundamental indexing in other countries could be a very good thing for the RAFI methodology. It gives investors a chance to see the methodology perform in different market environments and also allows it to build support in environments that may be less married to the concept of market-cap weighting. Since FTSE has partnerships with stock exchanges around the world, we could see more local RAFI indexes cropping up.