A rich academic history suggests equity returns can be explained by risk exposures, or factors. In our first white paper, we identified the Knowledge Effect, the tendency of highly innovative companies to experience excess returns. In this second report, we detail how we create the Gavekal Knowledge Leaders Indexes to capture the Knowledge Factor. Download “The Gavekal Knowledge Leaders Indexes: Capturing the Excess Returns of Highly Innovative Companies” to learn more about:

• The basics of index construction and the evolution of indexing methodologies
• Why we built new Gavekal Capital International (GKCI) Indexes to serve as our selection universe for the Gavekal Knowledge Leaders Indexes
• How our index methodology differs from the MSCI Index model
• How we create the Gavekal Knowledge Leaders Indexes to capture the Knowledge Factor, how they are allocated and how they have performed historically
• The results of a Fama-French four factor decomposition that quantifies the excess returns of the Gavekal Knowledge Leaders Indexes