Research Affiliates and Russell Investments today launched a series of 24 "alternative beta" fundamental indexes that use measures of company size, rather than market capitalization, to weight their components.
The new lineup of indexes marks Russell Investment's latest foray into alternative indexing. The firm currently offers a family of popular "dividend achievers" products using an alternative weighting methodology from Charlotte, N.C.-based Indxis. Russell also uses proprietary weighting technology from Axioma, Inc. in its "Factor" indexes.
Research Affiliates and Russell Indexes inked a deal last June to develop the new Russell Fundamental Index Series. It’s the second major partnership for Research Affiliates, which created the first-ever alternatively weighted line of indexes with the London-based financial data and analytics firm, FTSE, in 2005.
The new Russell products use three weighting criteria: adjusted sales, retained operating cash flow, and dividend payouts plus share buybacks. By contrast, the FTSE-RAFI family, which forms the basis for ETFs from Invesco PowerShares, uses four criteria: book value, cash flow, sales and dividends.
Despite its growing lineup of alternative indexes, Russell still believes that traditional market-cap-weighted products should still play a central role in ETF investing.
"The launch of these new indexes does not change the firm's belief that Russell's market capitalization-weighted indexes remain best suited for benchmarking and are an excellent basis for investable products," the company said in its press release.
Alternative indexing is a small but growing corner of the ETF world. Since the first FTSE-RAFI products began trading in 2005, the market for nonmarket-cap-weighted funds has grown to $60 billion.