The groundbreaking discoveries achieved by Nobel-prize winning
economists are the springboard for IFA’s investing strategies.
Implementing the important risk diversification methodologies
set forth by Markowitz, Sharpe and Miller — the fathers of
Modern Portfolio Theory, IFA’s Index Portfolios expand upon
their legendary achievements.
IFA’s 20 Index Portfolios are constructed according to the
important empirical research of Eugene Fama and Kenneth French.
The two now renowned economists made the groundbreaking discovery
that more than 90% of stock market returns come from exposure
to three specific risk factors: market, size and value.
The chart below illustrates
the impact of size and value investing across global asset
classes. In the chart, you see 82 years of history for U.S.
Large and Small Capitalization Stocks, 27 years of history
for Non-U.S. Developed Markets and 20 years for Emerging
Markets. Across each asset class represented here, we see
that small and value carry greater risk and return characteristics
for each time period shown. Fama and French’s discovery of
the significant increase in risk and return for small and
value enables institutional investors to isolate those specific
risk factors in specific indexes to achieve higher expected
returns that are commensurate with their designated risk