Fundamental indexation of government bonds involves four concrete, rational factors that reflect the economic power of a country: the gross domestic product, the surface area of the country, the power consumption and the population. In other words, the economic footprint of the countries concerned within the global economy is decisive for the weight. We believe that these factors together provide a relevant indication of the capacity of countries to repay their debt. It is important to take this into account when investing in government bonds.
Investing based on fundamental indexing means to step away from investing in countries with the largest sovereign debts, and to turn instead to countries that will be able to redeem their debt eventually. Thus, countries that do not grow but are consistently weighed down by high sovereign debt levels will be allocated a lower weight in the index and, therefore, in our portfolio. The fundamental factors provide a good indication of the extent to which a country will be able to achieve growth in the long run. This is why these factors are relevant in creating value.
Kempen Capital Management was the first asset manager in Europe to implement a fundamental index strategy developed by Research Affiliates®, the pioneers behind Fundamental Indexing and an important player in the smart beta industry. For the bond portfolio the de CitiRAFI benchmark is used.
“Turning factors into smart performance”EMma weeder
Our in-depth knowledge of the real estate industry has enabled us to identify three factors that reflect the economic power of a company: rental income, gross operating result and the dividend distributed by the real estate company.
In our approach, these factors not only determine the economic power, but also the weight that should be allocated to a company in a portfolio. This is how we compose a portfolio containing the winners of the future, whereas a market capitalization weighting is based on the winners of the past. We annually rebalance our portfolio. This annual periodicity helps to reduce costs and optimize the portfolio. We combine our knowledge with the expertise of Research Affiliates®, the pioneers behind Fundamental Indexing and an important player in the smart beta industry. Kempen uses the benchmark specifically made for this fund by Global Property Research.
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