Russell Investments has announced the new Russell High Efficiency Factor Index (HEFI) Series, a set of comprehensive index tools designed to help institutional investors effectively manage factor exposures in investment portfolios.
This new series of "smart beta" indexes, jointly created by Russell’s index and investment divisions, uses a consistent, transparent, factor-based weighting methodology to provide exposure to four commonly identified and utilized investment factors: low volatility, momentum, quality and value.
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Rolf Agather, managing director of global research and innovation at Russell Investments, said: "We began with the end user when conceptualizing our new indexes and tapped into Russell’s investment and index expertise to create them. Investors want more precise tools to access investment factors for desired outcomes. The HEFI methodology puts factor exposure at the heart of index construction."
In Russell’s recently published 2014 smart beta market survey, which polled 181 asset owners across Europe and North America on their perceptions and adoption of smart beta indexes, respondents’ single greatest "unmet need" was for smart beta indexes that helped control unwanted or introduce desired factor exposures.
The Russell HEFI series was created to help institutional investors meet these objectives. It uses a factor based weighting methodology to produce indexes providing strong factor capture with minimal active risk, low relative turnover and high investability.
HEFI is initially available on six Russell large cap equity universes; Global, Developed, Developed x-US, US, Developed Europe, and Emerging Markets. The consistent methodology utilized across the Russell HEFI series provides an advantage to investors looking to combine factor exposures in a portfolio.
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By GlobalDataRussell Investments believes that investment factors such as low volatility, momentum, quality and value are significant drivers of equity returns and that these factors have persisted across markets and through time.
Factor indexes are increasingly being used as tools by investors wishing to express a strategic or tactical view on one or more of these factors.
Scott Bennett, director of equity strategy and research at Russell, said: "The Russell HEFI Series focuses on equity market factors which are relevant, comprehensive, universally robust, persistent and implementable. In determining factor specifications for the new indexes we relied on our extensive capital market insights and drew on our experience researching active managers, constructing multi-factor portfolios and designing market leading indexes. And we ensured that all our factor specifications were consistent with academic research and were empirically relevant, using industry standard risk models".
Russell has been a leader in factor-based indexes for nearly three decades, starting with the introduction of the Russell Value and Growth Indexes in 1987 and, more recently, the Russell Defensive and Dynamic Indexes as a further evolution of style-based benchmarks.
In addition to its comprehensive global family of market capitalization-weighted equity indexes, Russell offers a full suite of alternative, or "smart beta" indexes to help investors pursue a wide range of outcomes.
New strategy or thematic indexes launched by Russell in recent years include equal weighted, fundamentally weighted, high dividend yield, geographic exposure, high efficiency defensive, volatility control and conscious currency.
