Index Strategies

RAFI ESG Indices

AT A GLANCE

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Integrates environmental, social, and governance metrics
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Offers potential for improved returns with financial discipline and diversity
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Systematically rebalances to fundamental weight to achieve excess returns

The RAFI ESG Index strategy promotes sustainability, financial discipline, and gender diversity, while delivering the potential for added returns through a thoughtful smart beta approach.

ESG (Environmental, Social, and Governance) strategies offer an effective approach for investors who are seeking increased risk mitigation along with the integration of their sustainability and investment objectives. The RAFI ESG Index strategy helps investors achieve the dual objectives of sustainability and long-horizon outperformance by combining traditional ESG metrics with financial discipline and gender diversity measures and with the proven return engine of the Fundamental Index approach.

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 ESG Index strategy

  • Integrates ESG considerations by overweighting companies that rate well across various ESG themes. Offering a well-designed ESG strategy helps meet the needs of investors who desire to make an impact through responsible environmental management, active social engagement, and good governance practices.

  • Supplements traditional ESG metrics with financial discipline and gender diversity for improved return potential. Combining four measures of financial discipline shown to align with long-term value creation and sustainable growth—high profitability, low investment, low issuance and dilution, and low accounting accruals—with measures that determine a firm’s commitment to gender diversity—paying particular attention to women in management, in the c-suite, and on company boards—can be additive to returns and company performance. 

  • 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 ESG 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.

PERFORMANCE SNAPSHOT

Download Performance Snapshot for All Index Strategy Families

Download Time Series Returns with the Performance Module

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