“Most companies that fail to pass Knowledge Leaders screen include those that are involved with utilities, commodities, extractable industries like energy, and financials, which have high leverage,” Vannelli said.
Additionally, Vannelli explained that the indices will perform best in a normal, stable, low inflationary environment with steady interest rates. For instance, in 2007, when prices were unstable and inflation was on the rise, the indices underperformed.
Looking ahead, GaveKal is interested in putting an ETF wrapper around the indexing methodology, but they are “still evaluating the best way to bring an ETF strategy around the indices to market,” Vannelli said.
Given the company’s established distribution channel through its active mutual fund offerings, which have about $600 million in assets, GaveKal could launch its own ETFs in the future.
For more information on market indices, visit our indexing category.
Max Chen contributed to this article.