EON 72: Fundamental Indexing

EON Financial Group SMSF Podcast

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EON speak to Michael Aked from Research Affiliates about Fundamental Indexing.

Fundamental Indexing is an alternative to Market Cap weighted indexing using sales, dividends, growth and book value to weight the stocks in the index.

Research Affiliates introduced Fundamental Indexing as a result of the Tech Bubble in the early 2000’s. They could not understand how companies with no revenue or profitability could be held by an index purely because of the market value. They took this information and developed a Fundamental Index that, according to Research Affiliates, has outperformed the S&P 500 over the period. The genius in the methodology is the inputs are measured over 5 years, reducing turnover and therefore costs.

The Fundamental Indexing approach used by Research Affiliates can be adopted across all markets and has produced strong returns in Australia. The last 12 months have benefited from larger positions in resource stocks, contributing to a return of 19% for the index, ASX code QOZ.

This is a great episode for all trustees looking to invest in Australian & US markets.

Compound your wisdom!

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