Constellation Capital Management has given the trend towards fundamental indexing some more impetus, dumping market cap weighted benchmarks for its HomeGlobal fund in preference for one based on book value, dividends, sales and income.
The HomeGlobal approach, which is currently run on $20 million in the Bentley International LIC, will use the 1000-stock global index devised by the creators of fundamental indexing, Rob Arnott and his colleagues at California’s Research Affiliates. Last month, State Street Global Advisors (SSgA) secured $350 million from two clients for its new Wealth Weighted Global Equities pooled trust, which tracks the financials-weighted FTSE GWA Developed Index. Constellation managing director, Doug Little, said fundamental (or ‘wealth weighted’) indexing sought to do globally what HomeGlobal was already doing domestically, which was combat the tendency of market cap benchmarks to overweight overvalued stocks and underweight undervalued stocks. An Australian equity mandate run using HomeGlobal eschews the high domestic weighting to banks in favour of the lower global weighting to banks, and supplements the Australian market’s relatively low exposure to pharmaceutical and biotechnology stocks with international selections from these sectors. Those global weightings will now be based on Research Affiliates indices, which based on thirty years of backtesting had outperformed their market cap weighted competitors by 2 per cent per annum, Little said. Unlike the FTSE GWA Developed Index, which rebalances whenever constituents release their quarterly financial data, the Research Affiliates indices only rebalance once a year.
While the energy transition and critical minerals are receiving a lot of attention as important megatrends, an Investment Magazine roundtable, hosted in partnership with New Forests, has heard that natural capital is an equally crucial piece of the nature puzzle but is "underrepresented, underinvested and generally misunderstood".
Hosted by Simon HoyleDecember 9, 2024
