Fundamental indexation: rebalancing assumptions and performance

Fundamental indexation: rebalancing assumptions and performance

15-09-2010 | Research

Rebalancing assumptions can have a significant impact on the performance of a fundamental index. We propose blending multiple indices, rebalanced annually but at different dates, to construct a more robust fundamental index without increasing turnover.

  • David Blitz
    Head of Quant Research
  • Bart van der Grient
    van der Grient
  • Pim  van Vliet, PhD
    van Vliet, PhD
    Head of Conservative Equities and Quant Allocation

Speed read

  • Index performance is highly sensitive to rebalancing assumptions
  • Performance ambiguity is an undesirable feature of an index
  • Blending multiple indices can lead to a more robust index
Stay informed on Quant investing with monthly mail updates
Stay informed on Quant investing with monthly mail updates

In this article,1 we show that the performance of a fundamental index with annual rebalancing, as proposed by Arnott, Hsu, and Moore (2005), can be highly sensitive to the subjective choice of when to rebalance. For the year 2009, for example, a fundamental index rebalanced every March outperformed the capitalization-weighted index by over 10%, whereas a fundamental index rebalanced every September underperformed.

We provide intuitive and statistical evidence in support of the hypothesis that if two fundamental indices diverge, they do not subsequently tend to mean revert (i.e., the gap is likely to be permanent). The performance ambiguity is an undesirable feature for an index that is used for benchmarking purposes.

We introduce the idea of blending multiple underlying fundamental indices, each one rebalanced annually but at different dates, as an example of how to construct a more robust fundamental index without increasing turnover.

1Blitz, D.C., Van der Grient, B. and Van Vliet, P., 2010, ‘Fundamental indexation: rebalancing assumptions and performance’, The Journal of Index Investing.


This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US Persons.

Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.


Important legal information

The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.

The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.

Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is ACOLIN Fund Services AG, Affolternstrasse 56, 8050 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/RobecoSAM AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/RobecoSAM AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.

This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.

I Disagree