Getting more out of your money is a philosophy which has served Argus Financial Limited well in Bermuda over the past few years.

And with the launch of its latest fundamental indexing products in Europe, Japan and the emerging markets last month, things are looking even better for its clients in terms of value of return on their investments.

For the new funds, which work in the same way as its original two US-based ones implemented earlier this year, have made investing even easier and allowed AFL's customers to fully understand what they are putting their money into.

Bill McKay, lead portfolio manager for AFL, who manages pension funds and private client portfolios, said the investment company decided to become the first of its kind on the Island to invest its clients' money in fundamental indexing following research conducted by Research Affiliates in 2005 looking back at its performance compared to the US stock markets over the past 45 years.

"We picked two US based funds - large and a small cap," he said.

"And the reason we did this was because it is a fairly new concept and it really ensures significant advantages compared to the existing indexing that has existed for decades, such as the Standard & Poor's 500 Index (S&P).

"There are inefficiencies in these indexes that this method exploits and the main inefficiency is one that you don't know the true value of a company in that an undervalued stock is weighted too low and an overvalued stock is weighted too high, but by using fundamental indexing it is based on four specific factors sales, cash flow, book equity value and dividends.

"Therefore the market weighted index is the price of stock multiplied by the number of shares."

He said one of the main problems with the standard indices is that they are based on what everyone believes stocks are worth and these markets can often be wrong, whereas the fundamental indexing method can offer a fairer reflection of true market value.

"An example is Nortel in Canada in 2000, which became one third of the value of the Toronto Stock Exchange - it was a hi-tech company, but it didn't have a base in economic reality and when the bubble burst it came right down."

In fact, one of the key findings of Research Affiliates' survey was that fundamental indexing performed, on average, almost one percent better than the S&P at 21.4 percent compared to 20.7 percent in a bull market, while it also measured up favourably in a bear market, only performing at minus (-) 17 percent in contrast to a loss of minus (-) 22.2 percent for S&P.

"The profile of how you get your returns fits in well with our model of financial capitalisation," said Mr. McKay.

"That is our model, particularly in terms of capitalisation when things are not going so well in the markets."

Now, AFL have branched off from the initial US funds into global markets in Europe, Japan and even further afield in a bid to follow up on its previous success, according to Mr. McKay.

"The survey was further extended by Japanese analysts Nomura to look at 23 different stock markets across the globe and the study showed it worked well in each market where it was tested," he said.

"The main difference is the larger the market the bigger the performance.

"Instead of picking up two percent a year, you are picking up eight percent.

"It looks at companies focusing on those individual markets and the main advantage is that this is a method that big institutional pension plans are going for and for your individual investor to do it is very difficult.

"We have more of an application to Japan and Europe than the traditional index would suggest and we think from an economic standpoint there is actually more of a risk to the US economy than the European economy."

And one of the beauties of fundamental indexing is cutting out the middle man and not having to deal with brokers.

"It is a half to a third of what active managers charge and there is no large infrastructure that is needed to run this," he said.

"It is a simple plan that is consistent - when you explain it to people they get quite exited because it is an easy concept to understand.

"We are always looking at things that can make our portfolios more efficient."

So far the fundamental indexing products have been introduced into $250 million worth of local pensions managed by the company with private investors also tapping into it on top of that.

Henry Perren, AFL's chief operating officer added: "We are very excited about it - we see ourselves as investors and we are giving the best investment ideas to the Bermuda market and we are a main offshore provider of these plans."

To find out more about fundamental indexing as a pension holder or private investor with AFL email invest[AT]argusfinancial.bm