Abstract

https://ssrn.com/abstract=1184848
 
 

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Citations (8)



 


 



Fundamental Indexation: An Active Value Strategy in Disguise


David Blitz


Robeco Asset Management - Quantitative Strategies

Laurentius (Laurens) Adrianus Petrus Swinkels


Erasmus University Rotterdam (EUR)

July 1, 2008


Abstract:     
In this paper we critically examine the novel concept of fundamental indexation. We argue that fundamental indexation is by definition nothing more than an (elegant) value strategy, because the weights of stocks in a fundamental index and a market capitalization-weighted index only differ as a result of differences in valuation ratios. Moreover, fundamental indices more resemble active investment strategies than classic passive indices, because (i) they appear to be at odds with market equilibrium, (ii) they do not represent a buy-and-hold strategy and (iii) they require several subjective choices. Last but not least, because fundamental indices are primarily designed for simplicity and appeal, they are unlikely to be the most efficient way of benefiting from the value premium. Compared to more sophisticated, multi-factor quantitative strategies, fundamental indexation is likely to be an even more inferior proposition.

Number of Pages in PDF File: 7

Keywords: Indexation, Fundamental Indexing, Alternative Beta, Value Premium, Capitalization Weighting, Non-Cap Based Indexing, Portfolio Construction

JEL Classification: G11, G12


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Date posted: July 29, 2008 ; Last revised: December 15, 2008

Suggested Citation

Blitz, David and Swinkels, Laurentius (Laurens) Adrianus Petrus, Fundamental Indexation: An Active Value Strategy in Disguise (July 1, 2008). Available at SSRN: https://ssrn.com/abstract=1184848 or http://dx.doi.org/10.2139/ssrn.1184848

Contact Information

David Blitz (Contact Author)
Robeco Asset Management - Quantitative Strategies ( email )
Weena 850
Rotterdam, 3014 DA
Netherlands
Laurentius (Laurens) Adrianus Petrus Swinkels
Erasmus University Rotterdam (EUR) ( email )
Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands
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