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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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FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

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.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Global Diversified Factor Index Series or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.

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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