Fundamental indexing selects, ranks and weights companies, not by market capitalization, but by financial fundamental measures of company size – including sales, cash flow, book price and dividends. This is a departure from traditional market capitalization weighted indexes, whose market value-based construction is susceptible to increases – and declines – in response to shifting investor preferences and expectations. Fundamental indexes, by contrast, show more stability in stock weightings and less volatility, helping to provide more favorable returns for investors.
Analysis of the FTSE RAFI 1000 Index Series, which is comprised of US companies, shows a positive return of 34% over a five year period, compared to –8% from the S&P 500 and –4% from the FTSE US All Cap index over the same period.
Recent RAFI studies indicate that fundamental indexes have produced consistently higher returns, at modestly lower risk, when compared to cap weighted indexes. Fundamental indexing has caught the attention of PIMCO, Nomura Asset Management, PowerShares, Claymore Securities, CalPERS, the South Dakota Investment Council and other plan sponsors, asset managers and structured product issuers.
“Our partnership with Research Affiliates is an important addition to FTSE’s expanding roster of respected and innovative partners,” said Mark Makepeace, CEO of FTSE Group. “Fundamental indexing is an alternative way to benchmark performance, and will provide new and enhanced opportunities for the investment community.”
Rob Arnott, creator of the Research Affiliates Fundamental Index (RAFI) and chairman of Research Affiliates, LLC, added “The new FTSE RAFI Index Series will finally give investors a choice, between cap-weighted indexes and an alternative set of indexes that offer less volatility, and steadily rebalance to portfolio weights rooted in fundamental measures of company size.“
Additional FTSE RAFI indexes will be launched throughout 2006, expanding the series of fundamental indexes and broadening investment options for investors worldwide. These will, over time, become available to investors through mutual funds, ETFs and active enhanced strategies. PowerShares Capital Management, the first firm to offer a FTSE RAFI investment product to the marketplace, is scheduled to launch an exchange traded fund (ETF) on the FTSE RAFI 1000 in mid-December, which will trade on the New York Stock Exchange (NYSE).
The FTSE RAFI index values are carried on Reuters and Bloomberg data terminals and can be found at:
| Bloomberg | Reuters | |
| FTSE RAFI 1000 | fr10 | .ftfr10 |
| FTSE RAFI Global ex US | frxlx | .ftfrx1 |
| FTSE RAFI Canada | frcan | .ftfrcan |
More information about the series, including constituent codes and performance history, can be found at www.ftse.com/rafi
