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Sweden’s IPM launches four fundamental index funds for institutions

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Stockholm-based IPM Informed Portfolio Management has attracted seed capital of around EUR65m for four funds aimed at institutional investors that are based on enhanced fundamental index s

Stockholm-based IPM Informed Portfolio Management has attracted seed capital of around EUR65m for four funds aimed at institutional investors that are based on enhanced fundamental index strategies from Research Affiliates, and screened for compliance with environmental, social and governance standards.

The IPM RAFI US, US Small Cap, Europe and Japan funds are domiciled in Luxembourg and are part of a Sicav umbrella structure. All four funds invest in equities and equity derivatives without net leverage or net short equity positions, with equity derivatives used to minimise impact of withholding taxes.  The minimum investment is EUR100,000, and subscription and redemption are monthly with 10 days’ notice.

‘We started to offer fundamental index strategies in managed account format in early 2006,’ says Jonas Rinné, chief executive and co-founder of IPM. ‘Interest has been very strong and we already have USD1bn under management in the strategy. There has also been demand for a pooled fund vehicle, and with the launch of this onshore registered fund product the fundamental index strategy is now accessible to a broader set of investors including smaller and mid-size institutions. We believe there is great potential here.’
 
The Research Affiliates Fundamental Index (RAFI) strategy determines portfolio weights using fundamental measures of size (total sales, free cash flow, book equity value and gross dividend) rather than market capitalisation, which it argues overweights stocks that are overvalued and underweight stocks that are undervalued.

According to Research Associates founder Rob Arnott, fundamental index strategies avoid this problem, while retaining the benefits of index investing. The firm says that according to retrospective analyses of developed world equity markets, the fundamental index approach has outperformed market capitalisation indices by more than 260 basis points per annum since 1984. 
 
The IPM RAFI equity funds are based on an enhanced RAFI strategy that improves the passive index methodology through systematic accounting screening, optimisation of factor weights and active rebalancing, and which has been shown to be capable of delivering a further 50 to 100 basis point of return on top of the 260 basis point outperformance of passive FTSE RAFI indices.
 
Through co-operation with GES Investment Services, the IPM RAFI funds are also screened for compliance with international conventions and guidelines on environment, human rights and business ethics. Non-compliance is primarily dealt with through an engagement dialogue but if that fails companies are excluded from the portfolio.
 
The funds have monthly liquidity and a range of three fee structures, ranging from fixed-only fees to a structure based almost entirely on performance. IPM also plans to launch another group of institutional RAFI funds on the same platform later this year.

IPM is a specialist asset manager that offers quantitative investment management solutions to institutional investors, including GTAA, currency management and fundamental indexation strategies delivered through strategic alliances with quantitative specialists First Quadrant and Research Affiliates. IPM manages some USD7bn in assets for clients including Sweden’s Environmental Agency, the Second Swedish National Pension Fund and the Swedish National Debt Office.

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