These new indexes, similar to the Russell Defensive Indexes, combine various economic and market risk factors—creating a “stability score”—to help investors identify high-quality, low-volatility stocks. The firm says the new indexes are the first and only series of low-volatility benchmarks to offer low-targeted tracking error to the Russell benchmarks, a key benefit to large pension plans, foundations and endowments. With more than $3.9 trillion benchmarked to Russell’s family of core indexes, Russell captures approximately 68% of the benchmark market share for all U.S. institutional equity products, more than all other U.S. indexes combined.
The weighting approach of the Russell High Efficiency Defensive Indexes and their ability to provide low tracking error to a Russell benchmark index is made possible through collaboration with Westpeak Global Advisors, an independent research and investment management company. Westpeak’s ActiveBeta portfolio construction methodology, utilized in the new High Efficiency Defensive Indexes, helps investors more efficiently capture targeted investment factors such as value, momentum and volatility. In this case the targeted factor is stability.
The Russell Defensive Index ranks constituents based on an assigned stability score and weights them according to market capitalization, creating a universe of higher quality, lower volatility stocks weighted in proportion to size. The Index weights constituents in proportion to their stability score. The indexes are rebalanced on a quarterly basis.The new Series initially consists of 22 separate Russell High Efficiency Defensive Indexes based on the Russell U.S. and Global Indexes. More information is here.
« How to Solve the ‘Equity Dilemma’