Low beta equal weight indexes from global index provider FTSE Russell help illustrate the characteristics that have been shown to deliver higher index returns with less volatility compared with the broader market in eight and ten year periods ended January 31, 2017.
According to FTSE Russell, the Russell 1000® Low Beta Equal Weight Index has had a higher return than the market capitalization-weighted Russell 1000 Index since the beginning of the current US bull market in early 2009 with lower relative volatility. This compares to the Russell 1000 Equal Weight Index, which also had a higher return than the Russell 1000 Index for this time period, but with a higher level of relative volatility.
The same comparison holds true for the ten year period ended February 28, 2017:
John Feyerer, vice president, director of equity ETF product strategy, PowerShares, said:
“Using indexes as the basis for investable products may be useful for investors constructing the core of their portfolio to fit a unique risk profile and overall investment objective. For example, we’ve worked closely with FTSE Russell to package an equal-weighted index into ETF technology for investors to gain broad exposure to profitable companies that have also shown to be less volatile than the broader market.”
Tom Goodwin, senior index research director, FTSE Russell, said:
“Smart beta indexes are effective tools in that they allow us to screen a universe of stocks for certain characteristics which index users believe may benefit them over time. In the case of the Russell 1000 Low Beta Equal Weight Index, the methodology screens out unprofitable companies and includes higher quality US large cap stocks which are skewed more toward mid-cap and exhibit low volatility relative to the broad universe of US large-cap stocks.”
Todd Millay, managing director, Choate Investment Advisors, said:
“With corporate tax reform and new trade policies likely to put pressure on large US multinationals and benefit smaller, more domestically-oriented US companies, many market participants are considering diversifying their core US equity position away from cap-weighted exposure, the performance of which relies disproportionately on just a few companies.”
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Views expressed by Tom Goodwin of FTSE Russell, John Feyerer of Invesco PowerShares and Todd Millay of Choate Investment Advisors are as of March 6th and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.
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