RAFI Strategies

RAFI Low Volatility

FTSE RAFI Low Volatility seeks to efficiently reduce equity risk, while maintaining attractive valuations and broadly diversified market exposures.

At a Glance

 

Efficiently reduces equity risk

Avoids overpriced low-volatility stocks

Builds on the RAFI™ Fundamental Index™

FTSE RAFI™ Low Volatility™ seeks to efficiently reduce equity risk, while maintaining attractive valuations and broadly diversified market exposures.

Equity markets can suffer uncomfortable drawdowns when stock prices deviate from fair value. Research has shown that stocks with lower volatility tend to outperform stocks with higher volatility, but solely focusing on reducing volatility can inadvertently result in a portfolio with overpriced holdings and concentrated bets.

Figure1-RAFI_Low_Volatility

Thoughtful design built on the Fundamental Index™ approach

Efficiently reduces equity risk 
Low-volatility strategies have been shown to reduce equity volatility by approximately 20% relative to the broad market. The FTSE RAFI Low Volatility Index series utilizes a measure of a stock's systematic risk to select securities, ensuring an efficient reduction of overall equity risk.

Avoids overpriced low-volatility stocks 
Investing in low-volatility stocks trading at high valuation multiples erodes the return benefit of low-volatility strategies. The FTSE RAFI Low Volatility Index employs a valuation screen to avoid investing in extremely expensive stocks.

Builds on the RAFI Fundamental Index approach
In selecting and weighting low-volatility securities by fundamental measures of company size, the FTSE RAFI Low Volatility Index series retains all the benefits of the Fundamental Index approach: potential for outperformance, ease of implementation, low cost, and broad diversification.

 

Methodology

Methodology-RAFI_Low_Volatility

 

 

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