Colonial First State (CFS) has netted $90 million from investors for its fundamental indexing fund targeting emerging markets, since launching the product in January.
This capital inflow, and the $2.8 billion garnered since late 2008 by Realindex Investments, CFS’ fundamental indexing business, could be attributed to investors’ wariness of costs in the post-financial crisis market, said Andrew Francis, CEO at Realindex Investments, at a press briefing yesterday.
The fund draws on the fundamental indexing methodology championed by Rob Arnott, chairman of Research Affiliates, to invest in 400 stocks across global emerging markets.
Francis said the tendency of stocks to revert to their mean prices caused a 2 per cent to 4 per cent “return drag” in developed-world market capitalisation index funds, and that greater volatility in emerging markets meant this mean-reversion could incur greater losses for traditional index fund investors.
He expected the emerging markets fund to experience higher stock turnover than its Australian counterpart, of about 30 per cent,
The Realindex funds ranked stocks by “economic footprint”, rather than market capitalisation, Francis said, and gauged this by measuring their sales, cashflows and dividends over the past five years and current book value.
