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Merseyside invests in fundamental index fund

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  • Merseyside invests in fundamental index fund

UK - The £4.26bn (€4.8bn) Merseyside local authority pension fund is provided half of the funding for a new enhanced indexation-type fund launched by Nomura Asset Management.

Leyland Otter, a senior investment officer with the pension fund, told IPE the fund is a breed of enhanced indexation type funds: " Instead of just investing on a passive basis, it looks at more qualitative aspects of companies and adjusts the holdings within the index accordingly."

He added the fund, entitled the Nomura Rafi global all-country equity fund, had made a commitment of $15m (€11.5m) - understood to be half of the seed funding required for the new fund - to explore the idea.

"If it proves successful we might commit more funds to it in the future," concluded Leyland, noting this is another way for the pension fund to invest in an index type product, but while hopefully avoiding the downside of the product.

The fund draws on the fundamental indexing theory as promoted by Robert Arnott, founder of Rafi.

"It is based on a fundamental analysis, looking at companies, and taking a view as to the future or the prospects for these companies, rather than just investing according to a market cap," said Leyland.

Arnott argued against market-cap weighted indexes, and has promoted the idea that fundamentally-weighted indices weight companies by factors such as sales, cash flow, book value and dividends.

Fundamental indices are not market-weighted, meaning they are not weighted according to market expectations of company performance, which proponents say captures reported fundamentals.

According to Mark Roxburgh, spokesman for Nomura, it is the first global equity product that is provided on such a particular benchmark.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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