Fundamental Indexation

We construct an efficient fundamental index (FI) portfolio by breaking the link between pricing errors and portfolio weights. Our fund management team seeks to eliminate the performance "drag" of a cap weighted index while retaining the key benefits of an equivalent cap weighted index. 

As at June 2010 we manage over $6 billion in FI strategies for clients around the world.

Our Investment Approach
We manage FI strategies on a team basis and have an experienced team of investment professionals dedicated to FI portfolio management led by Chief Portfolio Manager Kunio Noguchi in Tokyo.

Portfolios are managed through a rigorous and effective collaboration between the investment management teams at Research Affiliates LLC and our dedicated structured products, quantitative and trading divisions.

Rather than deriving portfolio weights from the vagaries of market cap valuation, they reflect a company’s fundamental measures of size (cash flow, book value, sales & dividends) and its real economic footprint.  

Our strategy aims to outperform the Index by 2% p.a. with an associated risk level of approximately 5% p.a.

Background to Investing
We believe over the longer-term, share price performance is driven by fundamentals such as earnings progression. Our approach is predicated by our belief that markets are not efficient and that short-term pricing anomalies are common.

By moving away from the market cap based approach, the longer-term (smoothed) FI methodology means that the portfolio does not have to buy stocks which have been bid to overvalued levels or sell stocks which have been heavily oversold in the market.

Overall we believe that a FI approach will outperform a market capitalisation approach in the medium to long-term.

Investment Style
In a nutshell, our approach offers: 

• A highly diversified portfolio
• Avoidance of the structural return drag created by market cap indicies
• Low cost with low levels of portfolio turnover 
• No capacity constraints

This strategy is available on a segregated basis (for which we are able to construct client specific strategies), and on a pooled UCITS III basis for global (all countries) equities.

 

Monthly report
		Fundamental Index Global Equities Fund
Presentation
		Fundamental Indexation at Nomura
Interesting articles
		Global Fundamental Indices
		Asset.TV interview our Investment Specialist