Abstract
This article compares fundamental index strategies with strategies that start with the market index and then tilt towards high fundamental-to-price ratio stocks. The authors find that the tilt strategies have similar return, volatility, and turnover as the corresponding fundamental index but have higher information ratios and lower tracking error. Using the same methodology, they also show that a modified index strategy that incorporates multiple distinct quantitative factors generates much higher information ratios with similar turnover.
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