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- Title
Fundamental Indexation and International Diversification.
- Authors
Estrada, Javier
- Abstract
Just as fundamental indexation is novel and controversial, international diversification is traditional and widely accepted. In this article, the author links both issues and evaluates a fundamental strategy of international diversification. Considering 16 country benchmarks that make up over 93% of world market capitalization and a 32-year (1974-2005) sample period, the results show that a dividend-weighted fundamental index outperforms a cap-weighted index by the substantial margin of 190 bps a year. If, however, investors are willing to abandon cap-weighted portfolios, the results also show that a simple value strategy which weights the same country benchmarks by dividend yield outperforms the dividend-weighted fundamental index by 170 bps a year over the same period. All the strategies evaluated by the authors can be easily implemented with widely available low-cost country index funds and exchange-traded funds.
- Subjects
BENCHMARKING (Management); EARNINGS per share; GLOBALIZATION; PRICE-earnings ratio; PORTFOLIO management (Investments) -- Mathematical models; INVESTMENT analysis
- Publication
Journal of Portfolio Management, 2008, Vol 34, Issue 3, p93
- ISSN
0095-4918
- Publication type
Article
- DOI
10.3905/jpm.2008.706247