Philosophy & Values

EIA's IFED index strategies are based on the premise that macroeconomic forces significantly influence the relation between risk factors and security prices. Our macro approach relies on a Federal Reserve monetary policy indicator that is based on the Fed’s actions on key interest rates. We believe that failure to consider the relationship between the monetary environment and security return patterns results in systematic mispricing of securities.
 
For example, our research shows that a strategy that targets small, out-of-favor stocks is extremely successful when the Fed is following an expansive monetary policy but underperforms when monetary policy is restrictive. Thus, a smart-beta product that tracks small, out-of-favor stocks underperforms when monetary conditions are restrictive, whereas the IFED strategy reallocates to a superior combination of stocks during such an environment.
 
Our active, rule-based index strategy is more complex than this simple example as we consider several financial metrics in combination with monetary conditions. The IFED approach identifies the set of firm metrics that can be used to identify firms that perform best during each of the three alternative monetary environments classified under our approach.

EIA Core Principals

  • Ethical conduct is essential

    • The EIA IFED strategy is guided by the CFA Institute Code of Ethics and Standards of Practice

  • Time in the market is crucial

    • IFED indexes are always fully invested, they shift holdings strategically based on changes in Fed policy

  • Diversification avoids underperformance

    • The IFED approach selects stocks using 12 unique financial metrics, which produces a diversified portfolio

  • Excessive turnover hurts performance 

    • The IFED strategy is dynamic; however, turnover is limited relative to most active strategies

  • Following the herd destroys wealth

    • The IFED strategy is grounded in economic/financial theory and has a long-term focus

  • Knee-jerk reactions are harmful

    • The IFED approach is rules-based, it strategically shifts with market conditions; it does not succumb to following the current investment fad

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IFED Index Strategy
Background & Description

  • ​Strategy developed based on over 30 years of peer-reviewed academic research

  • Unique firm metrics identify stocks that prosper under each of three monetary environments

  • Strategy selects and weights stocks, so allocation is positioned to capitalize on market conditions and avoid going out-of-favor

  • Approach is applicable to a range of asset classes, including international equities, bonds and commodities

  • Strategy has not materially changed over time, nor does it need to since it automatically adjusts with market conditions