Towers Watson recommends shift to fundamental indices

Senior investment consultant Philip Tindall says the firm believes traditional market cap indexes overweight overvalued securities and do not provide enough exposure to undervalued securities. He says the firm does not think all of a pensions fund's passive portfolio should be market cap weighted. He adds: "This won't reduce risk. What we think it will do is enhance returns without increasing risk." The strategy uses a range of fundamental factors, including sales, profits, book value and dividends to pick stocks. The fundamental FTSE RAFI All World index beat the market cap weight...