FTSE RAFI

FTSE RAFI: Pronounced “Footsie Raffy”.

FTSE

FTSE got its name because it was a collaboration between the Financial Times and the London Stock Exchange. It is best known for being an index data provider. You are probably most familiar with the FTSE 100 – which is the most widely followed UK stock market index. It is often mentioned in the same breath as the Dow or the S&P 500. FTSE currently provides index data for many thousands of indices globally.

RAFI

RAFI is an acronym for Research Affiliates Fundamental Index. It is a specific fundamental indexation methodology developed by Rob Arnott. Fundamental indexation can take on a variety of forms, mostly based on single metrics (i.e. just sales-weighting, or just dividend-weighting), but RAFI is a more well-thought out design which utilizes a composite of four separate fundamental metrics, and then further uses a five-year rolling average of those numbers. Research Affiliates is Arnott’s company and it gets its name because they are very “research” oriented and then license the use of research-driven products through various affiliates around the world. For example, the company I work for (Pro-Financial Asset Management) is an affiliate in that we provide the unit trust structure of index funds that track FTSE RAFI mandates around the world.

There is roughly US$35 billion in assets indexed according to Research Affiliates methodologies globally. I’ll flesh out the the nature of the methodology in the next post.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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