Prof. Dr. Klaus Röder

Fundamental Indexing

The investment industry has evolved to accept style investing and to use capitalization (free-float adjusted) weighted indexes to represent styles. Do fundamentally weighted style indexes provide a superior alternative to these cap-weighted indexes? Will the alleged superior return persist as more investors adopt non-cap weighted approaches?

research Goal: Determine the sources of risk and return of fundamentality weighted indexing strategies as compared to capitalization (free-float adjusted) weighted indexing. To what degree are differences in risk and return really manifestations of previously documented effects such as the size effect, the value effect, or industry concentration effects?

Evaluate the cost associated with this strategy and potential techniques to reduce turnover Identify low turnover rebalancing techniques while maintaining returns without substantially increasing trading costs, market impact cost, or tax liabilities.

Also identify specific market segments (investment styles) where the strategy offers superior risk-adjusted returns and identify appropriate benchmarks to use in performance analysis.

Identify and evaluate alternative portfolio construction techniques that attempt to capture the desirable features of market-cap and fundamental weighting.

Evaluate the best vehicle for these types of fundamentally indexed funds: exchange traded funds (ETF), mutual fund or separately managed accounts.