A Comparison of Fundamentally Weighted Indices: Overview and Performance Analysis

We analyse the performance of an exhaustive list of such indices and show that i) the outperformance over value-weighted indices may be negative over long time periods and that ii) characteristics-based indices do not significantly outperform simple equal-weighted indices. Furthermore, an analysis of both the style exposures and the sector exposures of characteristics-based indices reveals a significant value tilt. When properly adjusting for this tilt, these indices do not show any abnormal performance. Therefore, we argue that the main value added of these indices may be to provide investors with a liquid, systematic, and relatively cheap alternative to other valuetilted strategies. However, it should also be noted that if one recognises the potential to tilt exposures to sector or style factors, it is straightforward to construct factor portfolios that beat the characteristics-based indices in the sense of mean-variance efficiency.