Colonial First State (CFS) has struck an agreement with US firm Research Affiliates, which will allow for the distribution of index equity funds in Australia.
Under the deal, CFS will set up a wholly-owned company - Realindex Investments. The company will have an exclusive agreement to use the methodology of the Research Affiliates Fundamental Index (RAFI), to manage and distribute equity index funds.
RAFI overcomes the problem of traditional cap-weighted indexes tending to be either overweight, overvalued stocks, or underweight undervalued stocks, according to CFS chief executive Brian Bissaker.
"Traditionally, indexes use market capitalisation to determine portfolio weights. The RAFI methodology reflects a company's economic footprint using fundamental measures of size, rather than relying solely on market price, which is a one-dimensional view," he said.
CFS will be appointing a chief executive for Realindex Investments, and Bissaker said the company will be staffed from internal and external appointments.
The funds will initially be distributed through CFS's investment platform FirstChoice, and will be offered to both retail and institutional investors.
