Research Affiliates launches RAFI multi-factor and single-factor indices

Feb 1st, 2017 | By | Category: ETF and Index News

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Building on its latest research into the returns attributable to equity factors, Research Affiliates has launched a new range of multi-factor and single-factor indices.

Research Affiliates launches RAFI multi-factor and single-factor index suite

Rob Arnott, Chairman and CEO of Research Affiliates.

Chris Brightman, Chief Investment Officer, Research Affiliates, said: “From the hundreds of published factors purporting to predict equity returns, we have identified the few we believe can provide market-beating performance. Our new multi-factor strategies, along with the new single-factor RAFI indices, provide a comprehensive suite that we have conviction will benefit investors.”

Four of these factors will be accessible as single-factor indices – the RAFI Value Factor Index, RAFI Low Volatility Factor Index, RAFI Quality Factor Index, and RAFI Size Factor Index – across a variety of geographic categories and market capitalizations, providing investors a wide range of choices to meet their unique preferences.

The RAFI Value Factor Index is a concentrated value strategy that selects securities by their ratio of fundamentals to capitalization weight; the RAFI Low Volatility Factor Index is a concentrated low-volatility strategy that selects securities using a systematic risk measure; the RAFI Quality Factor Index is a concentrated quality strategy that uses the combination of high profitability and low investment to select quality stocks; and the RAFI Size Factor Index equally weights allocations to four factors—value, low volatility, quality, and momentum—within the small universe.

The RA Momentum Factor Index uses multiple measures of momentum—standard momentum, idiosyncratic momentum, and fresh momentum to select stocks. The Research Affiliates’ momentum strategy will not be available outside the RAFI Multi-Factor index suite however; due to high historical turnover and related trading costs, Research Affiliates has strongly recommended against using it as a stand-alone strategy.

The RAFI Multi-Factor index suite provides diversified exposures through equally-weighted allocations to a combination of five single-factor strategies – value, low volatility, quality, momentum, and size.

Additionally, the RAFI Dynamic Multi-Factor strategy dynamically allocates to value, low volatility, quality, momentum, and size based on long-term reversal and short-term momentum. This strategy is designed for investors who are concerned that some factors may be overpriced.

Rob Arnott, Chairman and CEO, Research Affiliates, commented: “Our new RAFI Dynamic Multi-Factor strategy addresses two critical weaknesses in many existing multi-factor portfolios: first, they may hold too much in a factor that is trading at high valuations relative to its history, and second, they work well only on paper, without regard to turnover, trading costs, and or capacity. In a series of publications last year, we shared our insights on why we believe emphasizing factors or strategies that are trading cheap relative to their own historical norms, and deemphasizing the more expensive factors or strategies, can improve performance. Now we offer a product that reflects these insights.”

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