Decomposing Fundamental Indexation

Journal of Index Investing, 2015

12 Pages Posted: 21 Apr 2015 Last revised: 18 Jan 2018

See all articles by Gregg S. Fisher

Gregg S. Fisher

Gerstein Fisher

Ronnie Shah

Deutsche Bank; University of Texas at Austin - Department of Finance

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: April 20, 2015

Abstract

This paper compares fundamental index strategies to strategies that start with the market index and then tilt towards high fundamental-to-price stocks. We find that the tilt strategies have similar return, volatility and turnover as the corresponding fundamental index, but have higher Information ratios and lower tracking error. Using the same methodology, we also show that a modified index strategy that incorporates multiple distinct quantitative factors generates much higher Information ratios with similar turnover.

Keywords: Fundamental Indexation, Value Investing, Portfolio Construction

JEL Classification: G11, G12

Suggested Citation

Fisher, Gregg S. and Shah, Ronnie and Titman, Sheridan, Decomposing Fundamental Indexation (April 20, 2015). Journal of Index Investing, 2015. Available at SSRN: https://ssrn.com/abstract=2596544 or http://dx.doi.org/10.2139/ssrn.2596544

Gregg S. Fisher

Gerstein Fisher ( email )

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HOME PAGE: http://www.gersteinfisher.com

Ronnie Shah (Contact Author)

Deutsche Bank ( email )

60 Wall St
New York, NY 10017
United States

HOME PAGE: http://www.db.com

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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