Fri, 02/05/2014 - 11:57
Russell Investments has launched the Russell High Efficiency Factor Index (HEFI) Series, a set of index tools designed to help institutional investors effectively manage factor exposures in investment portfolios.
This new series of “smart beta” indices, jointly created by Russell’s index and investment divisions, uses a consistent, transparent, factor-based weighting methodology to provide exposure to four commonly identified and utilised investment factors: low volatility, momentum, quality and value.
“We began with the end user when conceptualising our new indices and tapped into Russell’s investment and index expertise to create them,” says Rolf Agather, managing director of global research and innovation at Russell Investments. “Investors want more precise tools to access investment factors for desired outcomes. The HEFI methodology puts factor exposure at the heart of index construction.”
In Russell’s recently published 2014 smart beta market survey, which polled 181 asset owners across Europe and North America on their perceptions and adoption of smart beta indices, respondents’ single greatest “unmet need” was for smart beta indexes that helped control unwanted or introduce desired factor exposures.
The Russell HEFI Series was created to help institutional investors meet these objectives. It uses a factor based weighting methodology to produce indices providing strong factor capture with minimal active risk, low relative turnover and high investability. HEFI is initially available on six Russell large cap equity universes; Global, Developed, Developed ex-US, US, Developed Europe, and Emerging Markets. The consistent methodology utilised across the Russell HEFI series provides an advantage to investors looking to combine factor exposures in a portfolio.
Russell Investments believes that investment factors such as low volatility, momentum, quality and value are significant drivers of equity returns and that these factors have persisted across markets and through time. Factor indices are increasingly being used as tools by investors wishing to express a strategic or tactical view on one or more of these factors.
According to Scott Bennett, director of equity strategy and research at Russell: “The Russell HEFI Series focuses on equity market factors which are relevant, comprehensive, universally robust, persistent and implementable. In determining factor specifications for the new indices we relied on our extensive capital market insights and drew on our experience researching active managers, constructing multi-factor portfolios and designing market leading indices. And we ensured that all our factor specifications were consistent with academic research and were empirically relevant, using industry standard risk models.”
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