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Russell, Research Affiliates Plan Fundamental Index Series

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Russell Investments, a strong proponent of market-capitalization-weighted indexes, has joined with Research Affiliates (RA) to launch a new index series based on RA’s Fundamental Index methodology, the two firms announced on Friday, June 25.

The statement said that the Russell-RA relationship aims to produce readily investable strategy indexes, intended for investors seeking a more active investment approach. The new indexes are designed to give investors the opportunity to obtain alternative beta exposures that may be appropriate for their portfolios.

The Fundamental Index methodology selects and weights securities by fundamental measures of company size, as opposed to using the price-weighted methodology employed by traditional indexes, according to the statement. At present, some $50 billion in assets are invested in products that use non-price-weighted index strategies as the underlying index, it said.

“Working with the leader in fundamentally weighted index methodology, we’ll construct strategy indexes of the highest quality to serve the increasing demand for beta investment solutions,” Ron Bundy, managing director for Russell Indexes, said in the statement.

Bundy added, however, that the collaboration with RA does not change Russell’s belief that its market-cap-weighted indexes are the best description of the investable opportunity set and thus the most appropriate benchmarks.

“Fundamental Index strategies are rapidly gaining acceptance around the world,” said RA chairman Rob Arnott. Arnott discussed his views on investing, including cap-weighted versus fundamentally weighted indexes, in a June 24 talk at the Morningstar Investor Conference.

The Russell-RA announcement said that the initial offering in the new index series would likely be a global index that includes U.S. and non-U.S. exposures. It will come out late in the third quarter.

Michael S. Fischer ([email protected]) is a New York-based financial writer and editor and a frequent contributor to


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