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Global Pensions talks to David Morris of GWA about fundamental indexing

The only difference between GWA and a market cap index is that we use wealth metrics, as reported in financial statements quarterly, rather than share prices as reported by stock exchanges daily. 


The typical passive investor chooses to make the performance target their strategy. Analogously an investor that makes a re-weighted performance index their strategy is also a passive investor. One is passive with respect to market prices, the other with respect to market wealth.


It is important to understand that, in the long run, market cap weights must converge to equality with wealth weights. This is common sense because a company’s share price cannot grow faster or slower than the wealth (income) that company creates over the longer term. In the short run, however, market cap weights are random - just a preponderance of accidents of the moment.


To the extent that human intervention occurs, either by smoothing data, adding or subtracting constituents relative to the underlying market benchmark or by enhancing or suppressing market price movements an alternative index becomes active.

Global Pensions: What role can these play within a portfolio?

David Morris: GWA Wealth Weighted indices complement market capitalisation tracking strategies as part of the core portfolio. They increase diversification and this lowers risk. They also outperform market cap indices over the long run with much lower fees than active managers.

Global Pensions: What do think the next evolution of alternative indices will be?

David Morris: I think the future will bring more active strategies into the alternative index array of products. The development of the ETF market is already pulling in that direction. The constraint is the willingness of managers to disclose fully what they are doing.



David Morris, GWA founder and CEO, began his career in economic development in Africa with the Canadian government.  In 1992 he set up a pension consultancy in London and by 1996 had developed an investment strategy that built portfolios without using security prices. In 2005, GWA launched the world’s first non-price index in partnership with FTSE.

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