The FTSE RAFI Australia 200 ETF will trade under the code “QOZ” and offers Australian investors exposure to the top 200 listed companies on the Australian Securities Exchange (ASX).
“FTSE is a pioneer in alternatively weighted index strategies, with an established track record of providing index solutions to investors in Australia. We are proud to work with BetaShares to support a unique investment opportunity leveraging the globally recognised FTSE RAFI Fundamental Index methodology,” John Caulfield, director of business development Australia at FTSE said.
The methodology weights constituents according to four fundamental factors – sales, cash flow, book value, and dividends. This methodology aims to avoid the bias inherent in market capitalisation weighted indices.
“The problem with using market cap weighted indices for core broad market exposure is that security weights are linked to market price, so as the share price for a company increases, so does its index weight. This can lead to a performance drag deriving from overweighting overvalued securities and underweighting undervalued securities. By moving away from the market cap model, the FTSE RAFI Australia 200 ETF provides an intelligent alternative for Australian investors,” Alex Vynokur, managing director of BetaShares said.
“Using market cap as a basis for weighting constituents is a methodology that has been in existence for well over a century. The RAFI methodology is a significant advance in the sophistication of index development, with a compelling track record when compared with traditional, cap-weighted benchmarks.”
The new ETF has been built using the RAFI methodology developed by, amongst others, financial experts, Harry Markowitz – a Nobel Prize winner; and Jack Treynor and Burton Malkiel, the authors of the investing book A Random Walk Down Wall Street.
