Enhanced Indexing Equities

Smart approach to capturing equity risk premium

Key points

  1. Time-tested approach focusing on stable excess returns and limited relative risk

  2. Diversified exposure to established factors and innovative signals

  3. Aiming for a high information ratio (risk-adjusted returns)

Alpha drivers

One of the significant shifts in the past couple of decades has been the rise of passive solutions. Despite their undisputable merits, including low costs and transparency, they face challenges such as lagging behind benchmarks after accounting for costs, being prone to arbitrage, or facing limitations regarding sustainability integration.

Our Enhanced Indexing offering is a compelling option for capturing the equity risk premium. It blends the benefits of passive (diversification, low fees, transparency) and active (incorporating decades of research insights in asset pricing) investing. As a result, it aims for consistent index-beating returns after costs by systematically attaining a balanced exposure to return factors – momentum, quality, value and short-term signals – while limiting deviations from the index.

Our approach

Robeco’s Enhanced Indexing strategy is designed to systematically capture the broad market return and benefit from well-rewarded factor premiums and innovative signals while integrating multiple sustainability dimensions. This disciplined approach has generated consistent, cost-efficient outperformance since 2004.

Enhanced Indexing Equities leverage a time-tested systematic approach that obtains diversified exposure to an integrated multi-factor stock selection model. This ranks stocks based on the attractiveness of their valuations (value), the nature of their share price performance trends (momentum), the degree of their quality characteristics, e.g., balance sheet strength and profitability (quality), and the dynamics of short-term trends, e.g., share price reversals, and stock flows (short-term signals).

Using a low tracking error budget, a proprietary portfolio construction algorithm efficiently balances risk, return, and sustainability considerations to aim for stable excess returns. Client cash flows are also actively used to optimize portfolios by applying the latest stock rankings while avoiding unnecessary portfolio turnover, reducing costs, and enhancing net returns.

Wilma de Groot - Head of Core Quant Equities, Head of Factor Investing Equities and Deputy Head of Quant Equity

Wilma de Groot
Head of Core Quant Equities, Head of Factor Investing Equities and Deputy Head of Quant Equity

In the quest for the equity risk premium, our systematic approach for Enhanced Indexing acts as a compass, guiding investors with data-driven decisions.

Team

The quant group consists of more than 50 quantitative researchers and portfolio managers, making it one of the largest quantitative teams in the world. We combine this breadth of quant disciplines with over 25 years’ experience of translating our quant research into innovative solutions.

Robeco’s Enhanced Indexing strategy is run by an experienced group of portfolio managers within an organization that is fully committed to quantitative investing. The portfolio managers collaborate strongly with and benefit from the expertise of Robeco’s researchers in managing the strategy.

These researchers are responsible for the development and enhancement of quantitative models and applications, which form the heart of our quantitative equity product line. The experienced research team has strong academic links.

Regions

Enhanced Indexing is offered in different geographic universes, including developed markets and emerging markets.

Sustainability

This strategy promotes, among other characteristics, environmental and/or social characteristics, which include exclusionary screening, ESG integration, ESG risk monitoring and active ownership. It is classified as Article 8 under the EU Sustainable Finance Disclosure Regulation.

We incorporate sustainability in the investment process in multiple ways:

  • Companies with potentially harmful business practices or products are precluded from the investable universe in line with the Robeco exclusion policy.

  • The portfolio is constructed so that it has higher exposure to companies that contribute positively to the SDGs than the market.

  • The portfolio is built so that it reflects a better ESG risk profile and environmental footprint (carbon, waste and water) compared to the market.

  • Voting and engagement duties are carried out on behalf of clients and a direct link between the enhanced engagement program and the portfolio is applied.

We have versions of Enhanced Indexing available in our product range that offer improved sustainability compared to our flagship Enhanced Indexing strategies. These apply a more extended exclusion list, and also preclude companies with highly and moderately negative SDG scores from the investment universe. They also offer a significantly better ESG risk profile than the index and at least a 30% lower carbon footprint.

Robeco can also offer versions of Enhanced Indexing that focus on sustainability while neutralizing factors. These Paris-aligned SDG and Climate strategies target a 50% carbon reduction and do not invest in stocks that contribute negatively to the UN SDGs.

Ingredients

01

Core solution

A central investment of a long-term portfolio

02

Rich heritage

This has been a core expertise for us for decades

03

Stability

Team has long-term experience and low turnover

04

Systematic

Taking a rules-based approach to investment management

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Robeco aims to enable its clients to achieve their financial and sustainability goals by providing superior investment returns and solutions.

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