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Research & Insights

Combining Factors


Asset owners and asset managers are increasingly interested in so-called “smart beta” indexes, a category that includes factor and alternatively weighted indexes. In a series of four FTSE Russell Insights, we explore the concept of factors in depth. We examine the differences between factor indexes and other types of smart beta index, illustrate how factor exposure is embedded in an index and suggest how factors can be combined.

In this Insights, the fourth of the series, we explore the latter topic: how best to combine factors.

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Russell 2000 Reconstitution Effects Revisited


The costs to investors of passive investing and the relative merits of transparent index reconstitution rules are important investment management topics and subjects of perennial interest to researchers and investors alike. This is particularly true regarding the Russell 2000 Index, the preeminent benchmark index for the US small capitalization equity market.1 This paper updates prior research on the impact of index reconstitution on the performance of the Russell 2000 Index and reviews related work.

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Achieving Controlled and Meaningful Factor Exposure via Factor Indexes


Asset owners and asset managers are increasingly interested in so-called “smart beta” indexes, a category that includes factor and alternatively weighted indexes. In a series of four FTSE Russell Insights, we explore the concept of factors in depth. We examine the differences between factor indexes and other types of smart beta index, illustrate how factor exposure is embedded in an index and suggest how factors can be combined most effectively.

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ESG: Road Blocks or the Road to Integration?


Recent international forums such as COP21 and the World Economic Forum (WEF) have drawn increased attention to global economic risks arising from corporate environmental, social and governance (ESG) practices and performance. In particular, WEF concluded that climate change was the greatest global risk in their latest survey1 and made a call to action for ESG integration by investors.

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Russell Stability Indexes: Performance of Russell 1000 combined style indexes in various market conditions


In 2010, Russell introduced its Stability (Defensive/Dynamic) Index Series to complement its valuation (Growth/Value) and size (Large/Small) indexes. The inclusion of Stability, the Russell-denoted “third dimension of style,” enhanced investors’ ability to more precisely identify risks and opportunities in equity markets.1 The Stability Indexes are constructed using a mix of Quality and Volatility characteristics, with more stable companies being classified as Defensive and less stable companies as Dynamic.2

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Alternatively Weighted and Factor Indexes

 

Asset owners and asset managers are increasingly interested in so-called “smart beta” indexes, a category that includes factor and alternatively weighted indexes. In a series of four FTSE Russell Insights, we explore the concept of factors in depth. We examine the differences between factor indexes and other types of smart beta index, illustrate how factor exposure is embedded in an index and suggest how factors can be combined most effectively.

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Factors and Factor Exposures

 

Asset owners and asset managers are increasingly interested in so-called “smart beta” indexes, a category that includes factor and alternatively weighted indexes. In a series of four FTSE Russell Insights, we explore the concept of factors in depth. We examine the differences between factor indexes and other types of smart beta indexes, illustrate how factor exposure is embedded in an index and suggest how factors can be combined most effectively.

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Getting defensive about the small cap premium

  • The small cap premium has long been a staple of equity investing, but recently some practitioners have called its very existence into question.
  • New research suggests that the mix of quality, volatility and size factors is important. This is confirmed with an analysis of the Russell 2000® Defensive Index, which combines these three factors and exhibits a strong small cap premium.
  • The performance of the Russell 2000® Defensive Index points the way to exploring further multifactor combinations in the small cap asset class.
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Managing the Transition with FTSE Global China A Inclusion Indexes

On May 26, 2015, FTSE Russell introduced the FTSE Global China A Inclusion Indexes as a transitional tool in preparation for the potential inclusion of China A-shares in its widely followed global benchmarks. These indexes were designed in response to the gradual liberalization of the Chinese capital markets, as evidenced by the growth of the QFII and RQFII schemes and the introduction of the Shanghai-Hong Kong Stock Connect program.

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Multifactor Indexes: The Power of Tilting

It wasn’t too long ago that the concept of factors in investing was the exclusive province of professors of finance and a few active “quant” managers. Mainstream portfolio construction was focused primarily on asset allocation. Within equities, that meant achieving the right balance in allocation to various segments such as large cap and small cap, country and sector, and perhaps value and growth style.

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