How does the RAFI portfolio compare with other passive equity investment alternatives?
We examined a number of alternative approaches, including diversification-based investing, minimum variance, and maximum diversification models. Our research shows that all of these strategies—including the Fundamental Index approach–derive their added value from the same sources and are thus similar to naïve equal-weighting approaches, such as the S&P 500 Equal Weight Index.* The key issue is that all of these alternative index strategies break the link between price and security weight and performed very well relative to a cap-weighted index. However, implementation costs, liquidity and capacity constraints distinguish them: only the Fundamental Index methodology did well in all three categories.
