Quantitative Investment Strategies in the Equity Market: An Assessment of the Fundamental Indexing Strategy in the Swiss Equity Market

Abstract

The purpose of this study is to understand how the fundamentally weighted indexing strategy perform in the Swiss market through a comparison with the capitalization weighted strategy. The fundamental indexing in Switzerland was found to have similar returns as the cap-weighted index, however it comes with additional risk. Thus, it cannot be argued that the fundamental indexing strategy is superior to the cap-weighted index in the Swiss market, in the 22-year period of which this study is conducted. Three potential reasons that can explain why no superior performance of the fundamental indexing strategy are discussed. First, it is discussed whether this is a consequence of price-efficiency in the Swiss market. Secondly, the construction of the fundamentally weighted index is addressed, where it is questioned whether the composition of the index is sub-optimal. Lastly, the factor exposures that drive the performance of fundamental index could be a potential explanation.