Realindex adds emerging markets fund

Colonial First State subsidiary Realindex Investments has added an emerging markets fund to its suite of fundamental indexing products, which re-weight stocks within a portfolio based on fundamental measures of a company’s size.

These factors are derived from the past five years of accounting data from a global database of companies, with companies then weighted according to dollar sales, dollar cash flow and dollar amount of dividends, as well as the company’s actual book value, according to Realindex chief executive Andrew Francis. The portfolio is then rebalanced quarterly, he said.

Traditional indexing is inefficient in that it results in a portfolio being overweight to overvalued companies and underweight to undervalued companies, causing return drag when prices revert, Francis said.

The Realindex emerging markets fund holds around 400 stocks across 21 countries, holding only stocks in markets that are defined as ‘emerging’ according to the MSCI Index, although Francis pointed out that the individual stocks do not mirror those in the MSCI Index.

He cautioned that this approach can and will underperform a cap weighted index in a growth oriented bubble-type market but added that in a lower return environment such as the one we are currently looking at, removing that return drag can have significant long term return benefits.

The fund is aimed at advisers and end retail clients, as well as institutional investors.