Fundamental indexering – ny förvaltningsstil hos Andra AP-fonden

As of July 1st 2006, part of the Second Swedish National Pension Fund/AP2’s North American equity portfolio will be managed with fundamental indexation. Fundamental indexation aims to increase future return on investment in relation to portfolio risk.

Fundamental indexation replaces conventional capital-weighted portfolios. In capital-weighted portfolios, the market pricing of individual securities has a significant impact on the relative weighting of equities within the portfolio. In fundamentally weighted portfolios, the basic portfolio structure is determined according to the actual size of individual companies within the “real” economy. In practice, this means a reduction of fairly highly valued equities (that are consequently priced for relatively low future returns) in the portfolio, while simultaneously ensuring a greater proportion of conservatively valued equities. Experience has shown that this type of fundamentally indexed portfolio yields a higher return at a lower risk compared to conventional capital-weighted indexes as the return drag of capital-weighting is avoided. This difference has proved particularly decisive in periods when markets have been highly speculative and stock valuations greatly inflated, as at the start of the new millennium.

As an investment strategy, fundamental indexation is “passive” by nature, applied to only a part of AP2’s strategic portfolio. Fundamental indexation also provides a complement to conventional “active” management strategies. Initially, USD 600 million of the Fund’s portfolio of North American equities will be managed with Research Affiliates Fundamental Index (RAFI), as a strategic benchmark index. This implementation of fundamental indexation is a further example of the importance attached to using more efficient basic portfolios in managing Fund assets.


For further details, please contact Tomas Franzén, Chief Investment Strategist (CIS), Second Swedish National Pension Fund/AP2, or Carl Rosén, Head of Corporate Governance and Communications, on +46 (0)31 704 29 00.