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Index IDEA: Low beta equal weight index illustrates successful US stock characteristics over the last decade

Low beta equal weight indexes from global index provider FTSE Russell help illustrate the characteristics that have been shown to deliver higher index returns with less volatility compared with the broader market in eight and ten year periods ended January 31, 2017.

According to FTSE Russell, the Russell 1000® Low Beta Equal Weight Index has had a higher return than the market capitalization-weighted Russell 1000 Index since the beginning of the current US bull market in early 2009 with lower relative volatility. This compares to the Russell 1000 Equal Weight Index, which also had a higher return than the Russell 1000 Index for this time period, but with a higher level of relative volatility.

The same comparison holds true for the ten year period ended February 28, 2017:

John Feyerer, vice president, director of equity ETF product strategy, PowerShares, said:

“Using indexes as the basis for investable products may be useful for investors constructing the core of their portfolio to fit a unique risk profile and overall investment objective. For example, we’ve worked closely with FTSE Russell to package an equal-weighted index into ETF technology for investors to gain broad exposure to profitable companies that have also shown to be less volatile than the broader market.” 

 

Tom Goodwin, senior index research director, FTSE Russell, said:

“Smart beta indexes are effective tools in that they allow us to screen a universe of stocks for certain characteristics which index users believe may benefit them over time. In the case of the Russell 1000 Low Beta Equal Weight Index, the methodology screens out unprofitable companies and includes higher quality US large cap stocks which are skewed more toward mid-cap and exhibit low volatility relative to the broad universe of US large-cap stocks.”

 

Todd Millay, managing director, Choate Investment Advisors, said:

“With corporate tax reform and new trade policies likely to put pressure on large US multinationals and benefit smaller, more domestically-oriented US companies, many market participants are considering diversifying their core US equity position away from cap-weighted exposure, the performance of which relies disproportionately on just a few companies.”

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© 2017 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.

 

FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.

 

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.

 

Views expressed by Tom Goodwin of FTSE Russell, John Feyerer of Invesco PowerShares and Todd Millay of Choate Investment Advisors   are as of March 6th and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

 No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell 1000® Low Beta Equal Weight Index or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

 

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.

 

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets.

 

This publication may contain forward-looking statements. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. Any forward-looking statements speak only as of the date they are made and no member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking statements.

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