RAFI™ Fundamental Reduced Carbon Pathway Indices

The RAFI Fundamental Index™ approach is founded on principles of contrarian investing and disciplined rebalancing. By using fundamental measures of company size to select and weight companies, this approach eliminates the performance drag associated with traditional passive investment vehicles and has historically led to outperformance in developed markets of approximately 1.5%–2.0% a year.¹

Given the contrarian nature of the RAFI Fundamental Index approach, the strategy’s positioning tends to overweight traditionally high carbon-intensity sectors, such as energy, utilities, and materials. The RAFI Fundamental Reduced Carbon Pathway Indices begin with the RAFI Fundamental Index and tilt constituent weights to reduce the overall carbon intensity of the index by a fixed amount at each rebalance.

The RAFI Fundamental Reduced Carbon Pathway Indices are designed for investors who wish to both retain the benefits associated with the Fundamental Index methodology and reduce the strategies’ exposure to carbon-intensity levels. 

1. “Fundamental Indexation.”  2005. Arnott, Hsu, and Moore.

• Breaks the link between price and weight.
  Using fundamental measures of company size to sever the link between price (market capitalization) and portfolio weight, the strategy avoids significant overweight allocations to trendy, popular, and the most expensive securities.
• Seeks to reduce carbon intensity over time.
  The index strategy is designed to reduce the the index’s overall carbon intensity by a fixed amount at each rebalance, which translates into a 3.0%–3.5% reduction a year. 
• Includes thoughtful design and implementation.
  Integrating multiple implementation considerations results in an index strategy with transparency, broad diversification, and low cost, which benefits investors.