FIGURE 2 Frequency of Initiation by Fundamental Alignment Score (relative to average initiation rate of .34%)
Fundamental Alignment Score
• Funds with high exposure to a security’s industry were no more or less likely than random to subsequently initiate in the security’s industry.
• Funds with no industry exposure were half as likely as random to subsequently initiate in the security’s industry.
• For almost all industries—112 out of 119—funds with low exposure to an industry were more likely than funds with high exposure to initiate a position in the industry.
• Of the remaining seven industries, only two—real estate investment trusts and alcoholic beverages— showed strong positive correlation between industry exposure and initiation while five showed neutral correlation.
Fundamentals-Based Targeting Methodology We took a similar approach to assessing the effective- ness of fundamental targeting.
4 2 S P R I NG 20 2 5 ■ IR UPDAT E
1. Categorizing funds by their alignment with security fundamentals a. Using the same database of 13,477 actively managed funds and 5,790 securities, we measured the alignment between the fundamentals of the stocks held by each fund and the fundamental attributes of each security. Tis resulted in “alignment scores” for 78 million fund-security combinations (or “pairs”) as of September 5, 2023.
b. Alignment scores range from 1 (lowest align- ment) to 100 (high- est alignment) and represent the per- centile rank of a pair’s alignment
ni ri .org/ irupdate
x average initiation rate
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