Russell Indexes, in consultation with J.P. Morgan, rolled out the Russell Fundamental U.S. Top 100 Volatility Control 7% Index in late October. The new index places a volatility control overlay onto the fundamentally weighted index methodology.
The Russell Fundamental U.S. Top 100 Volatility Control 7% Index serves up exposure to the 100 largest U.S. stocks, with constituents determined based on three fundamental measures: sales adjusted for leverage; retained operating cash flow; and dividends plus buybacks. The volatility overlay at play in the index is targeted at 7 percent realized volatility.
This new index combines the potential advantages of a fundamentally weighted investment strategy with a volatility-control mechanism that seeks to provide stability in unpredictable markets, per a press release from Russell.
The Russell Fundamental Index Series was launched in 2011 in conjunction with Research Affiliates. The series fundamentally measures company size rather than stock price and uses that metric to select and weight constituents.