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Index IDEA: Fundamental indexes reflect YTD market conditions

Fundamentally weighted indexes from FTSE Russell outperformed their market cap weighted index counterparts across a broad range of global regions and market cap ranges in 2016 as of August 31.

The year-to-date performance of fundamentally weighted indexes, which weight constituents based on fundamental measures such as adjusted sales, retained operating cash flow and dividends plus buybacks, rather than market capitalization, highlights some key themes driving global equity markets in 2016 while reinforcing the value to market participants of considering a variety of index tools to inform and support their investment decisions:

  • The Russell Fundamental Emerging Markets Large Company Index methodology weights its constituents more toward value-oriented emerging markets stocks, which have performed well in 2016. Its fundamental methodology has caused the index to be overweight in the stronger performing Materials & Processing and Energy sectors and underweight in the weaker performing Financial sector year-to-date.
     
  • The Russell Fundamental US Large Company Index has been overweight this year in the Producer Durables sector which has shown higher performance and underweight in the Healthcare sector as large healthcare stocks have underperformed in the US.
     
  • The Russell Fundamental US Small Company Index has also been underweight in the underperforming Healthcare sector in 2016. And the index has been overweight in Utilities, which have shown higher performance  year-to-date.

The Russell Fundamental Index Series, launched in 2011, will be renamed the Russell RAFITM Indexes, effective on December 1. The indexes have a new name but retain the same methodology. For more information, go to the FTSE Russell website. The indexes underlie a series of exchanged traded funds (ETFs) and mutual funds offered by Charles Schwab Investment Management.
 

Rolf Agather, Managing Director of North America Research, FTSE Russell

"The Russell Fundamental Index Series is designed to complement traditional market cap weighted indexes. The index constituents are less dependent on stock price and, for this reason, tend to emphasize more value-oriented companies, which tend to be rewarded more in times of heightened global market volatility. This effect can be enhanced in traditionally more volatile and price sensitive global regions such as emerging markets."


Tony Davidow, Vice President, Alternative Beta & Asset Allocation Strategist, Schwab Center for Financial Research

"We believe in the merits of a global asset allocation philosophy. We also believe in the benefits of incorporating active, market-cap and fundamental index strategies across segments of the market, including: US Large and Small Company, International Large and Small Company, and the Emerging Markets."

 

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Views expressed by Rolf Agather of FTSE Russell and Tony Davidow of Charles Schwab  are as of August 31st and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the London Stock Exchange Group.

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Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets.

 

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