For the past 35 years, investors have had two choices: passive or active portfolio investment. If they believed markets were largely efficient, they chose to invest through capitalization-weighted index funds. If they believed markets were inefficient, they picked active management.
But both approaches are inherently flawed. Both approaches have their problems:
Capitalisation weighted equity index funds tend to overweight overvalued securities and underweight undervalued ones.
Active management is not transparent, comes with high fees, and tends to underperform the benchmark over long time periods.
Smart beta strategies, such as non-price-weighted indices, offer an alternative choice.
These strategy indices retain the benefits of traditional capitalization-weighted indices, such as broad market exposure, diversification, liquidity, transparency, and low cost access to markets. At the same time, they offer the opportunity to achieve superior performance over the cap-weighted benchmark.
IFRC presents the Smart Beta indexes family:
VNX 25 High Dividend
The VNX 25 High Dividend index consists of the 25 stocks from the VNX Large 50 Index with the highest realized dividend yield over the past 12 months. Constituents are weighted relative to their corresponding past year dividend yield, with the highest yield stocks receiving the highest weights.
VNX 25 Low Volatility
The VNX 25 Low Volatility index consists of the 25 stocks from the VNX Large 50 Index with the lowest realized volatility over the past 12 months. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights.
VNX 25 Equal Weighted
Equal weighting gives the same weight, or importance, to each stock in an index. The smallest companies are given equal weight to the largest companies in an equal-weight index. This allows all of the companies to be considered on an even playing field.
The VNX 25 Equal Weighted has the same constituents as its VNX 25 parent index. Instead of capitalisation weighting, each stock is weighted equally.
VNX 50 Equal Weighted
The VNX 50 Equal Weighted has the same constituents as its VNX Large 50 parent index. Instead of capitalisation weighting, each stock is weighted equally.
