Introducing RMI UK Value

Mukul Pal · March 6, 2013

We are pleased to introduce a new style of ORMI Indices. We call it ‘The Worst 20’. Why is it called ‘Worst’? The Index selects the worst performers among a group of assets or the worst performers among a broad index e.g. UK FTSE 100. Why is it 20? The index selects the bottom 20 percentile of the performers among the respective group.
Why do we think Worst 20 selection is worth a portfolio? Because markets are prone to reversion and in the long run worst performers become top outperformers. Moreover unlike the best, the worst are at a discount, which makes them inexpensive and hence more likely to add value to a portfolio. Please refer to our blogs and SSRN page for related material.
What are the features of ‘Worst 20’? Unlike our other ORMI products, the ‘Worst 20’ product line is designed for longer holding periods 12 month and more. They are designed to outperform the underlying universe i.e. UK Worst 20 should outperform the FTSE 100 performance.
Is the worst designed as a relative return fund? Most of ORMI indices are designed to conserve cash and give absolute positive returns annually. However absolute return does not say much on its own, one need to compare relative returns vs. the underlying universe. Owing to its long holding period i.e. 12 months and more, ‘The Worst 20’ is completely passive and is designed to outperform the underlying universe. But worst 20% allocations reduce drawdowns and volatility dramatically compared to the universe.
How should ‘Worst 20’ be used for investment? The ORMI Worst 20 is a running portfolio, allowing for an allocation at any time of the year.
How did ‘ORMI UK Worst 20’ do? On an annualized basis (From Aug 2001), ORMI UK Worst 20 delivered 11% compared to 1.4% by the FTSE 100.