FTSE RAFI™ Index Series
Methodology Enhancements

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October 20161Important information
FTSE Russell is not an investment firm and this presentation is not advice about any
investment activity. None of the information in this presentation or reference to a FTSE
Russell index constitutes an offer to buy or sell, or a promotion of, a security. This
presentation is solely for informational purposes. Accordingly, nothing contained in thispresentation is intended to constitute legal, tax, securities, or investment advice, nor anopinion regarding the appropriateness of making any investment through our indexes.

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FTSE RAFI™ Index Series
Methodology Enhancements Summary• Overview• Single Review Universe• Regional Review Process• Regional Universe Banding• Constituent Selection and Weighting• Phased deletions within the QSR indexes• Estimated Turnover and Number of Holdings• Proposed Timeline

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FTSE RAFI™ Index Series
Overview• FTSE and Research Affiliates® launched the FTSE RAFI™ Index Series in2005 comprised of:• FTSE RAFI™ US 1000 Index• FTSE RAFI™ Developed ex-US 1000 Index• There are currently over 100+ indexes within the FTSE RAFI™ Index Series• FTSE Russell and Research Affiliate’s® indexes are currently used as the basisof over $90 billion in investment products1• The proposed methodology enhancements will be implemented during theMarch 2017 Index Review
The proposed methodology enhancements will simplify methodology andindex construction while streamlining the ongoing maintenance of theFTSE RAFI™ Index Series.
1 “FTSE Russell Benchmark AUM” report as of December 31, 2015FTSE Russell

4Single Review UniverseIssue: The current methodology used to construct FTSE RAFI™ Index Series is notglobally consistent and relies on various starting universes.
Current Approach

Proposed Approach

Country indexes are built separately using
individual country-level indexes such as:Single starting universe for entire FTSE RAFI™
suite consisting of:•

FTSE All-Share Index (UK)•FTSE Global All Cap Index•

FTSE ASFA Australia All-Share Index•

Russell 3000® Extended Index•

FTSE/JSE Africa All-Share Index•

FTSE ASFA Australia All-Share Index•

FTSE UK All-Share Index•

FTSE/JSE All Share Index

Benefit
The proposed methodology enhancements will provide a transparent and consistent framework for theFTSE RAFI™ Index Series. The new methodology will allow users to tailor their requirements andaddress future needs in an easy to understand building block approach.

Q1. Do you agree with moving to a single review universe to be used as the basis ofconstructing all FTSE RAFI™ Indexes?
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5Regional Review Process
Issue: The current methodology relies on a fixed number of securities to determine
index membership.
Current Approach

Proposed ApproachFTSE RAFI™ Index Series are constructed using
different approaches:

Six regions will be constructed from the starting
universe: US, UK, Japan, Developed Europe exUK, remaining Developed countries, remaining
Emerging countries.

••

All regional and some country indexes are built
using a fixed number of securities

Developed country indexes (excluding US) arebuilt as a carve out of the FTSE RAFI™
Developed ex-US 1000 index.

Individual indexes will be built from each region
using a fixed percentage of cumulative unadjusted
FTSE RAFI™ weight as follows:• Large Company: Top 68%• Mid Company: 68% - 86%• Small Company: 86% - 98%

BenefitAllows for consistent and deeper selection within regions and a clearer representation of regions withinglobal indexes. Increased capacity for the FTSE RAFI™ Emerging Markets Index.

Q2. Do you favor constructing the FTSE RAFI™ indexes using a fixed cumulative
weight percentage as opposed to a fixed number of stocks?
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6Regional Universe Banding
Issue: The current methodology does not utilize banding to limit migration of index
members across indexes.
Current Approach

Proposed ApproachThe FTSE RAFI™ Indexes do not currently
employ banding.

Existing constituents of any region will remain inthe portfolio as long as they fall within a fixed
percentage range of cumulative unadjusted FTSE
RAFI™ weights as follows:•••

Large Company: 71%
Mid Company: 89%
Small Company: 99%

Benefit
Reduced turnover leading to lower cost of implementation.

Q3. Are you in favor of using a banding approach to limit index membershipchanges?
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Constituent Selection and Weighting
Issue: The current methodology excludes companies with small float.

Current Approach

Proposed Approach

Companies are both selected and weighted byfloat/liquidity adjusted FTSE RAFI™ weight.

Eligible companies are selected based on
unadjusted FTSE RAFI™ weight, i.e. before
applying free float or liquidity adjustment.

As a result, large companies with small float are
not represented in large company indexes

Selected companies are then assigned a weightbased on free-float and liquidity adjusted FTSE
RAFI™ weights.

BenefitAllows for accurate representation of large companies even if their free floats are smaller.
Aligns our methodology with that of parent FTSE Russell benchmarks and other standard industry
benchmarks.

Q4. Do you agree with qualifying eligible companies based on their weight prior toapplying free float or liquidity adjustment?
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8Phased Deletions within FTSE RAFI™ QSR IndexSeriesIssue: The current treatment of index deletions is inconsistent across various FTSE
RAFI™ indexes.
Current Approach

Proposed Approach

Deletion of securities for the FTSE RAFI™ QSRIndex Series occurs immediately at index
reconstitution on the third Friday of March.

Deletion of securities from the index will be phasedout across each quarterly rebalance.

Benefit
Improved implementation as securities are phased out over time versus sold immediately.
Creates consistency between the FTSE RAFI™ Index Series and the FTSE RAFI™ Low Volatility IndexSeries.

Q5. Do you favor a single approach to security deletions that allows for a phased
removal of stocks from the FTSE RAFI™ QSR Index Series?
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9Estimated Turnover and Holdings

Methodology

One Way Turnover (%)
at Reconstitution

RegionCurrentProposed

Current

Proposed

All-World

Top 3000

Top 86%

10.7

13.3

DevelopedTop 1000

Top 86%

9.9

Developed ex US

Top 1000

Top 86%Developed ex US Small

1001 to 2500

EuropeNumber of Securities
at Reconstitution
Current

Proposed

Incremental

2.6

3038

2361

-677

14.4

4.5

1019

1803

784

9.9

12.2

2.3

1016

1137

121

86% to 98%

23.7

33.5

9.8

1500

1536

36

Dev ex US

Top 86%

9.2

11.9

2.6

481

349

-132

EurozoneDev ex US

Top 86%

11.4

12.4

1.0

253

209-44Emerging

Top 350

Top 86%

17.0

20.4

3.4

360

558

198

UK

Top 300

Top 98%8.3

13.2

4.9302286-16USTop 1000

Top 86%

8.8

11.3

2.5

1008

666-342

US Small1001 to 2500

86% to 98%

22.1

58.0

35.8

1500

1162-338

CanadaTop 100

Top 86%10.4

10.3-0.1

101

1010

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Incremental

10Proposed Timeline• 21 October 2016:• Complete Client Consultation• November 2016:• Notify clients regarding proposed methodology enhancements• December 2016 / January 2017:• Provide clients with sample files• 15-January – 28-February 2017:• Conduct parallel testing and file delivery• 17-March-2017:• Implement new FTSE RAFI™ Index Series methodology and filedeliverables
Q6. Does the proposed timeline provide sufficient time to implement themethodology enhancements and new file deliverables?
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