Index Strategies

RAFI Diversity & Governance Indices

AT A GLANCE

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Identifies companies with sound management practices and a healthy company culture
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Emphasizes companies with strong corporate governance low volatility
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Systematically rebalances to fundamental weight to achieve excess returns

The RAFI Diversity & Governance Index provides exposure to well-managed companies, identified by measures of diversity, financial discipline, corporate governance, and stock volatility.

The RAFI Diversity & Governance Index takes a broad approach to assessing a company’s governance strengths, considering both narrow corporate governance practices (e.g., board of director independence and audit and internal controls) and general business behavior (e.g., anti-competitive practices and responsible lobbying). By combining exposure to well-managed companies with the market-tested return engine of the Fundamental Index, investors gain the potential for long-term excess returns, increased risk mitigation, and portfolio constituents with attractive characteristics.

Research shows a positive link between strong financial discipline and increased returns. Financial discipline measures a firm’s commitment to generating sustainable long-term performance rather than making decisions to benefit managers in the short run. Research shows that more-diverse teams lead to better decision making and company performance.

Thoughtfully designed to deliver for investors

The RAFI Diversity & Governance Index strategy

Identifies well-managed companies through measures of financial discipline and gender diversity. Integrating measures of financial discipline—high profitability, low investment, low issuance and dilution, and low accounting accruals—and gender diversity—focusing on the number of women in management, the c-suite, and company boards—identifies companies that are aligned with long-term value creation and sustainable growth. 

Controls for headline risk and downside risk by screening for strong corporate governance and low volatility. Considering both narrow corporate governance practices (e.g., board of director independence, audit, and internal controls) and general business behavior (e.g., anti-competitive practices and responsible lobbying) helps control headline risk, while a consideration of volatility helps protect against downside risk.

Incorporates thoughtful design and implementation. Integrating ESG principles with the contrarian investing principles and the disciplined rebalancing of the Fundamental Index strategy—which uses fundamental measures of company size to select and weight companies—results in a non-price-weighted index strategy that aims to deliver excess return versus the cap-weighted benchmark.

 

INVESTMENT
PROCESS

RAFI DIVERSITY & GOVERNANCE INDICES
RESOURCES

RAFI Roadmaps provide the theoretical and empirical evidence behind the index strategy as well as current valuations and explain how the valuations translate into expected returns.

Factsheets provide information on recent performance, attribution, characteristics, country/sector weights, and top holdings.

Download White Paper on Investment Principles of the RAFI Diversity and Governance Index

PERFORMANCE SNAPSHOT

Download Performance Snapshot for All Index Strategy Families

Download Time Series Returns with the Performance Module

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