RAFI™ Fundamental Low Carbon Transition Index Series

Using fundamental measures of company size to select and weight companies, the RAFI Fundamental Index approach eliminates the performance drag associated with traditional passive investment vehicles. Based on the principles of contrarian investing and disciplined rebalancing, the approach has historically led to outperformance in developed markets of approximately 1.5%–2.0% a year.¹

The RAFI Fundamental Low Carbon Transition Indices begin with the RAFI Fundamental Index adjusted to reduce carbon intensity by 30% relative to the overall market. At each quarterly rebalance, target carbon intensity is further reduced by roughly 7% a year. Coal companies and controversial weapons companies are excluded from the index.

The RAFI Fundamental Low Carbon Transition Indices are designed for investors who wish to retain the benefits associated with the Fundamental Index methodology, while also aligning their investment strategy with the transition to a low-carbon economy. 

1. “Fundamental Indexation.”  2005. Arnott, Hsu, and Moore.

• Offers immediate and continual carbon reduction.
  At launch, the index has a 30% reduction in carbon intensity compared to the investable universe, with further reductions at each quarterly rebalance, translating into roughly 7.0% a year.
• Meets multiple ESG objectives.
  Strategy offers substantially reduced carbon intensity, continued transition to lower carbon-intensity levels, and removes exposure to controversial weapons companies.
• Engages in contrarian rebalancing.
  Systematic rebalancing using a company’s fundamental weight as a rebalancing anchor embeds a buy-low, sell-high approach, selling securities whose prices have increased and purchasing securities whose prices have fallen and thus have more-attractive relative equity valuations.