Russell Investments on Thursday launched 24 new indexes based on Research Affiliates’ methodology of weighting index constituents by fundamental measures of company size, such as sales, rather than by market capitalization.
The Russell Fundamental Index series will offer attractive alternative beta exposures to investors “seeking an active investment approach,” Ron Bundy, managing director for Russell Indexes, said in a news release. He added that Russell still believes its market-cap-weighted indexes are best suited for benchmarking.
In a telephone interview, Ken O’Keeffe, managing director with Russell Indexes, placed the new fundamental index series somewhere between pure passive market-cap-weighted indexes and active, stock-picking strategies.
Thursday’s launch reflects “the growing desire from the investment community for a product that has a lot of the benefits of passive, but also has some potential for higher returns,” Mr. O’Keeffe said.
In a separate interview, Robert D. Arnott, chairman and CEO of Research Affiliates, said depending on an investor’s frame of reference, a market-cap-weighted strategy can be seen as either purely passive or an active bet being made by the market on a company’s prospects. While saying he sees an index in which company weights are determined by fundamental factors such as sales and dividend payouts as beta, rather than alpha, there’s room for investors with either view to use the strategy as they see fit.