Why Choose IFED Indexes?
Leveraging its founders’ extensive research, the “Invest with the Fed” (IFED) methodology uses Fed policy signals and firm fundamentals to guide stock selection.
The IFED strategy is a dynamic approach that selects portfolios that align with the market environment signaled by Federal Reserve policy actions.
Strategy Features
-
Long-term strategy supported by 30+ years of peer-reviewed research
-
Pursues alpha by using monetary conditions and firm-specific metrics to select securities
-
Weights securities by proprietary IFED score instead of market capitalization
-
Avoids the timing issues inherent with factor and smart beta investing
-
Adjusts automatically with changes in market conditions to avoid becoming out-of-favor
-
Designed to capture upside potential, while limiting downside risk
-
Replicable, investable, rules-based and transparent
-
Customizable to meet specific client needs
Business Description
Economic Index Associates (EIA) is a developer and licensor of active index strategies that are replicable, investable, rules-based and transparent.
EIA’s three founders (Robert Johnson, Gerald Jensen and Luis Garcia-Feijoo) are the authorities on the association of Fed monetary policy with security returns – combined they have published over 200 academic articles, which have over 10,000 citations. The basic premise of their original research is captured in their book - "Invest with the Fed" (McGraw-Hill, 2015).
Leveraging its founders’ extensive research, the “Invest with the Fed” (IFED) methodology uses Fed policy signals and firm fundamentals to guide stock selection. The IFED strategy is a dynamic approach that selects portfolios that align with whatever market environment is signaled by Federal Reserve policy actions.
Philosophy and Values
EIA's index strategies are based on the premise that macroeconomic forces significantly influence the relation between risk factors and security prices. Our 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 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, rules-based IFED strategy is more complex than this simple example as it uses twelve firm-specific metrics to identify stocks that perform best during each of the three alternative monetary environments classified under our approach.
EIA Core Principles
Ethical conduct is essential
The EIA IFED strategy is guided by the CFA Institute Code of Ethics and Standards of Practice
Excessive turnover hurts performance
The IFED strategy is dynamic; however, turnover is limited relative to most active strategies
Time in the market is crucial
IFED indexes are always fully invested, they shift holdings strategically based on changes in Fed policy
Following the herd destroys wealth
The IFED strategy is grounded in economic/financial theory and has a long-term focus
Diversification avoids underperformance
The IFED approach selects stocks using 12 unique financial metrics, which produces a diversified portfolio
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
