Research Affiliates LLC
Henderson Rowe is a specialist index portfolio manager for the FTSE RAFI index series. These are a global series of indices, and we can provide bespoke products, enabling regional, country, sector or ethical preferences.
Using the fundamental indexation methodology developed by Research Affiliates LLC, this index series breaks with the traditional price-based market capitalisation weighted design, instead deriving constituent weights from company fundamentals.
The methodology uses the audited values of cash flow, book value, total sales and gross dividend to derive each constituent index weight. Prices, which can be prone to speculation, are not a component of the weights. As the fundamental index weights are regularly reviewed at the index review, the constituent weights are less affected by the corrosive effect of speculative pricing bubbles that can over-expose an investor to individual companies, sectors or countries.
The four fundamental factors are:
- Sales: company sales averaged over the preceding five years
- Cash Flow: company cash flow averaged over the prior five years, defined as operating income plus depreciation
- Book Value: company book value at the review date
- Dividend: total dividend distributions, averaged over the last five years, including both special and regular dividends paid in cash
We believe that the FTSE RAFI products represent the next stage in evolution for index tracking. They combine the benefits of a passive philosophy: lower management fees, lower turnover costs, risk diversification and transparent rules-based selection criteria, with superior performance, over the longer term, when compared to the returns of traditional indices.
The lead investment manager of our FTSE RAFI team, Darren Winstone, has extensive experience in managing passive equities for both segregated and corporate pensions clients as well as considerable knowledge of managing exchange traded funds. He joins us from Barclays Global Investors, where he was Head of ETF Developed Market Portfolio Management, running their flagship iShare funds and developing new ETF products. Previously he was an Index Fund Manager at Legal & General Investment Management where he was employed for nine years.
