The Fundamental Index A Better Way to Invest
by Arnott, Robert D.; Hsu, Jason C.; West, John M.; Markowitz, Harry M.Edition: 1st
Format: Hardcover
Pub. Date: 2008-04-25
Publisher(s): WILEY
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Summary
The Fundamental Index offers a breakthrough strategy for capturing the best market returns at the lowest cost and with the least risk. In this important new book, the highly respected Rob Arnott explains how passive, market capitalization weighted index investing falls short and fails to serve investors, investing too much in overpriced stocks and too little in underpriced shares. He shows how a new twist on indexing, fundamental indexing, eliminates this return drag and, in so doing, earns greater returns. In addition to discussing the powerful long-term performance of this strategy, this comprehensive guide also reveals how the new fundamental index outperforms most powerfully when excess returns are needed most, during market and economic downturns. In short, Arnott's innovative and straightforward strategy gives investors a new tool to achieve excess returns in a projected low-return environment while preserving the many positive attributes of index fund investing.
Author Biography
Robert D. Arnott is a leading industry thinker and researcher who served as the editor of the Financial Analysts Journal from 2002–2006 and who has authored over 100 articles for journals such as the Financial Analysts Journal, the Journal of Portfolio Management, and the Harvard Business Review. Arnott serves as Chairman of Research Affiliates, LLC, a global leader in innovative investing and asset allocation strategies. Founded in 2002, Research Affiliates distributes investment products in partnerships with leading financial institutions including PIMCO, PowerShares, Charles Schwab, Nomura Asset Management, and FTSE, to name only a few.
Jason C. Hsu, PhD, is Managing Director, respon-sible for Research and Investment Management, at Research Affiliates, LLC. He is also a Professor in Finance at the Anderson School of Business at UCLA.
John M. West is Associate Director and Product Specialist at Research Affiliates, LLC. Previously, he was vice president and senior consultant at Wurts & Associates, where he managed the firm's overall research effort.
Table of Contents
| Foreword | |
| Preface | |
| Efficient Indexing for an Inefficient Market | |
| Evidence of Market Efficiency | |
| The Case for Indexing | |
| Evidence of Market Inefficiency | |
| Conclusion | |
| Origins of the Fundamental Index Concept | |
| The Origins of Research Affiliates Fundamental Index (RAFI) | |
| A Series of Aha! Moments | |
| Research Affiliates Fundamental | |
| Index | |
| Fundamental Index Performance | |
| Concluding Thoughts: A Better Way to Invest | |
| Investors Greatest Errors | |
| Negative Alpha | |
| Practicing What We Preach | |
| Conclusion | |
| The Virtues of Index Funds | |
| The Appeal of Equity Investing | |
| Equity Investing Choices | |
| The One Guarantee in Investments-Costs Matter | |
| Index Fund Advantages | |
| Avoiding the Performance Game | |
| Concluding Point | |
| The Index FundG+&s Achilles Heel | |
| Market Efficiency: Two Interpretations | |
| Constructing a Well-Functioning | |
| Index | |
| The Achilles Heel of Cap-Weighting | |
| The Problems with Equal Weighting | |
| Concluding Thoughts | |
| A Fundamental(ly) Better | |
| Index | |
| Building the Fundamental | |
| Index | |
| Adjustments for non-dividend-paying companies | |
| Why Multiple Measures of Company Size? | |
| Advantages of a Composite Measure | |
| An Index of the Broad Economy | |
| Capacity and Liquidity | |
| Reconstituting the Fundamental Index: Keeping Turnover Low | |
| Concluding Comments | |
| Fundamental Index Performance in U.S. Stocks | |
| RAFI US Large Company Performance | |
| Digging Deeper across Market Cycles | |
| Digging Deeper into Different Time Periods | |
| An Equal Comparison: Fundamental Index vs. Equal Weighting | |
| Out-of-Sample Results: Small Companies | |
| Using the Fundamental Index with Style: Growth and Value Applications | |
| Narrowing the Focus: NASDAQ | |
| Narrowing the Focus: REITs | |
| Narrowing the Focus: Sector Performance | |
| Extending the Analysis Back in Time | |
| Conclusion | |
| Beyond Borders: Fundamental Index Performance in Global Markets | |
| Fundamental Index Performance in Global Markets | |
| Multicountry Portfolios | |
| Emerging Markets | |
| Consistency Counts | |
| Concluding Comments: Lessons Learned From the Global Markets | |
| Has Theory Led the Profession Astray? | |
| Will the Real Active Strategy Please Step Forward? | |
| The Origins of Cap Weighting | |
| Apparent Validation of Cap Weighting by Theory | |
| Forty Years Later: Empirical Results of the CAPM | |
| OckhamG+&s Razor Applied | |
| Concluding Comments: Theory and the Profession | |
| The Basic Criticism: Our Style and Size Tilt | |
| Merely a Value Tilt | |
| Small-Cap Bias | |
| Fama and French Factors | |
| Some Big Surprises in Small Companies | |
| Conclusion | |
| Other Common Critiques: Hits and Misses | |
| Mining the Data? | |
| Costs | |
| Is It an Index? | |
| Do We Know Which Stocks Are Overvalued? | |
| How Long Can It Last? | |
| Conclusion | |
| Why Trust the Fundamental Index Concept? | |
| Stock Logic | |
| The Present vs. the Future: How Often Is Wall Street Right? | |
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| Problems | |
| Effect of Stress | |
| Cold Working | |
| Stress-Corrosion Cracking of Iron and Steel | |
| Mechanism of Stress-Corrosion Cracking of Steel | |
| Effects through Coupling of Different Steels | |
| Effect of Heat Treatment | |
| Steel Reinforcements in Concrete | |
| References | |
| General References | |
| Problems | |
| Effect of Stress | |
| Cold Working | |
| Stress-Corrosion Cracking of Iron and Steel | |
| Mechanism of Stress-Corrosion Cracking of Steel | |
| Table of Contents provided by Publisher. All Rights Reserved. |
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