Fundamental Indexation

We construct an efficient Fundamental Index® 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. 

Our Investment Approach

We manage Fundamental Index® strategies on a team basis and have an experienced team of investment professionals dedicated to Fundamental Index® 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.  

For the Nomura Fundamental Index All Countries and Fundamental Index Japanese Equity strategies, we aim to outperform the Index by 2% p.a. with an associated risk level of approximately 5% p.a. For the Nomura Fundamental Index Emerging Markets strategy, we aim to outperform the Index by 4% p.a. with an associated risk level of approximately 6% 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) Fundamental Index® 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 Fundamental Index® approach will outperform a market capitalisation approach in the medium to long-term.

Investment Style

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