The $4.2 billion PowerShares FTSE RAFI US 1000 (ETF) (NYSE: PRF) debuted over a decade ago. Today, PRF is widely considered one of the forefathers of the booming smart segment of the exchange-traded funds industry.
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PRF follows the FTSE RAFI US 1000 Index, which employs four fundamental metrics: book value, cash flow, sales and dividends. The 1,000 stocks with the best fundamental strength make the cut for PRF's underlying index.
“Since inception, PRF has posted a three-year rolling win rate of 78 percent over its benchmark, the Russell 1000 Index. That means that over three-year rolling windows, the underlying index has outperformed the Russell 1000 Index nearly 80 percent of the time,” according to PowerShares.
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PRF has a small- and mid-cap cousin that is delivering for investors this year: The PowerShares FTSE RAFI US 1500 Small-Mid (NYSE: PRFZ). Although it is home over $1.4 billion in assets under management, PRFZ is often overlooked relative to PRF. Such is the plight of an ETF that does not focus on large cap.
However, PRFZ should not be overlooked. In what has been a good year for mid caps, PRFZ is higher by nearly 9 percent.
“When this fund debuted back in September of 2006 there were critics abound in terms of this new concept to market known as 'Fundamental Indexing' but judging from the asset levels attained by these two products as well as PRFZ’s 3-star Morningstar ranking presently, the concept has been embraced rather well from the investing public. PRFZ does not trade a ton of daily volume, averaging only about 31,000 shares regularly, but we will see volume swells here and there on days where managers may be putting on or taking off larger positions in block size such as the recent inflow activity,” said Street One Financial Vice President Paul Weisbruch in a note out Wednesday.
Like PRF, PRFZ emphasizes book value, cash flow, sales and dividends with small/mid-cap offering holding about 1,470 stocks. As is the case with many ETFs with value exposure, PRFZ features a significant weight to financial services stocks. PRFZ devotes 24.2 percent of its weight to that sector though the ETF's 7.4 percent weight to energy stocks is low relative to large-cap, traditional value ETFs.
Since inception PRFZ's net asset value has outpaced the Russell 2000 Index, a widely followed small-cap benchmark, by nearly 200 basis points.
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