Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

RAFI ETFs YTD: Boom Or Bust?

Wed, Oct 24, 9:15 AM ET, by Michael Johnston

As the ETF industry continues to develop, many investors have begun to move away from the more “traditional” funds in favor of ETFs that employ unique methodologies that are aimed at delivering potentially higher returns. Of the most noteworthy and popular innovations has been the development of alternative weighting strategies, specifically the RAFI methodology [see 101 ETF Lessons Every Advisor Should Learn].

Several years ago, Research Affiliates, a global lead in innovative investing and asset allocation strategies, developed the fundamentally-weighted indexes that utilize the RAFI methodology. Now there are nearly 20 different exchange-traded products that are linked to RAFI-weighted indexes. But before taking a look at the performance of these popular funds, a fundamental understanding of the unique methodology is essential.

Understanding RAFI

The RAFI weighting methodology is relatively straightforward. While traditional cap-weighted indexes determine allocations based on market capitalization, RAFI funds take into account several fundamental factors to determine the weighting of an individual holding. These factors include cash flow, book value, sales and dividends [see also RAFI ETFdb Portfolio].

The primary criticism of market capitalization weighted indexes is that there is a direct relationship between stock price and the weighting assigned. The RAFI methodology’s goal is to effectively break the link between share price and weight within an index. And while cap-weighting features a number of potential advantages - such as low cost and maintenance - their noteworthy drawbacks warrant investors to perhaps take a look alternative strategies, such as RAFI. For example, cap-weighted methodologies tend to overweight overvalued stocks and underweight undervalued ones, which can obviously create a potential drag on returns.

A look at the performance of these fundamentally-weighted ETFs in comparison to their cap-weighted counterparts highlights the impact of weighting methodologies on bottom line returns [see the best performing ETFs in 2012].

How Do RAFI ETFs Stack Up YTD?

Ticker RAFI Index RAFI ETF YTD Cap-Weighted Index Cap-Weighted Index YTD
PRF FTSE RAFI 1000 15.36% Russell 1000 Index 16.28%
PXF FTSE RAFI Developed Markets ex-U.S. 10.61% MSCI EAFE Index 9.48%
PAF FTSE RAFI Asia Pacific ex-Japan 17.38% MSCI AC Asia Pacific ex-Japan 13.21%
PXH FTSE RAFI Emerging Markets 9.05% MSCI Emerging Markets 9.92%
PDN FTSE RAFI Developed ex-U.S. Small-Mid 10.31% MSCI EAFE Small Cap 12.66%
PRFZ FTSE RAFI U.S. 1500 Small-Mid 12.19% Russell 2000 14.23%
*Year-to-date returns as of 10/22/2012

Out of six Powershares RAFI ETFs, only two funds have outperformed their corresponding cap-weighted indexes; the FTSE RAFI Developed Markets ex-U.S. (PXF) and FTSE RAFI Asia Pacific ex-Japan (PAF) ETFs. The underperforming RAFI ETFs do not, however, trail far behind their cap-weighted competitors. But for those cost-conscious investors, the high price tag on these ETFs, which average around 0.75% to 0.8%, may not be worth it since only a few have proven that the RAFI methodology trumps traditionally-weighted indexes.

Value YTD Core YTD Growth YTD
Large Fundamental Pure Large Value Portfolio (PXLV) 16.27% Fundamental Pure Large Core Portfolio (PXLC) 13.55% Fundamental Pure Large Growth Portfolio (PXLG) 18.05%
Mid Fundamental Pure Mid Value Portfolio (PXMV) 15.64% Fundamental Pure Mid Core Portfolio (PXMC) 9.89% Fundamental Pure Mid Growth Portfolio (PXMG) 9.40%
Small Fundamental Pure Small Value Portfolio (PXSV) 14.28% Fundamental Pure Small Core Portfolio (PXSC) 9.29% Fundamental Pure Small Growth Portfolio (PXSG) 10.26%
*Year-to-date returns as of 10/22/2012

PowerShares’ lineup of value, core and growth “Fundamental Pure” ETFs have certainly raised the bar in 2012, delivering double digit year-to-date returns. Of the lot, the large-cap focused funds have all outperformed their mid and small-cap counterparts across all three investment styles. Thus far in 2012, the biggest winner has been the RAFI Fundamental Pure Large Growth Portfolio (PXLG) with its whopping 18.05% year-to-date return [see Free Report: How To Pick The Right ETF Every Time].

Ticker ETF YTD
PHB Fundamental High Yield Corporate Bond Portfolio 8.64%
PFIG Fundamental Investment Grade Corporate Bond Portfolio 5.21%
*Year-to-date returns as of 10/22/2012

For those looking for fixed income exposure, perhaps the RAFI methodology is not the best option, as year-to-date returns are significantly lagging in comparison to other funds in PHB’s and PFIG’s respective categories.

While the fundamentally-weighted PHB does offer a relatively handsome 8.92% return, the comparable SPDR Barclays Capital High Yield Bond ETF [etf ticker='JNK' ratings='true'] has logged in gains of 11.02% thus far in 2012. And in regards to PFIG, the ultra popular iBoxx $ Investment Grade Corporate Bond Fund [etf ticker='LQD' ratings='true'] has delivered year-to-date returns of 10.95%, nearly double that of PFIG’s [see also 5 High Yielding Real Estate ETFs].

Follow me on Twitter @DPylypczak

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.

Click here to read the original article on ETFdb.com.


SDI Glossary: "Bond" Definition
SDI Glossary: "price" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "Yield" Definition
This Article's Word Cloud:   Asia   Bond   Core   Corporate   Developed   ETFdb   ETFs   Emerging   FTSE   Fundamental   Growth   High   Index   Japan   Large   MSCI   Markets   PFIG   Pacific   Portfolio   Pure   RAFI   Small   Value   Year   comparison   counterparts   date   fundamentally   funds   have   indexes   investors   look   methodologies   methodology   only   popular   price   returns   strategies   that   their   these   traditional   true   unique   weighted   weighting   year

| More

NUGT: Large Outflows Detected at ETF
Fri, Jan 23, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: NUGT Exchange traded funds (ETFs) trade just like stocks, but ...

SLV: ETF Outflow Alert
Fri, Jan 23, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: SLV Exchange traded funds (ETFs) trade just like stocks, but ...

MDY, EQIX, O, AAP: ETF Outflow Alert
Fri, Jan 23, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: MDY, EQIX, O, AAP Exchange traded funds (ETFs) trade just ...

UCO: Large Inflows Detected at ETF
Fri, Jan 23, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: UCO Exchange traded funds (ETFs) trade just like stocks, but ...

Cisco Systems a Top Socially Responsible Dividend Stock With 2.7% Yield (CSCO)
Fri, Jan 23, 9:24 AM ET, by ETF Channel

Cisco Systems, Inc. (CSCO) has been named a Top Socially Responsible Dividend Stock by Dividend ...

EMDD Makes Bullish Cross Above Critical Moving Average
Thu, Jan 22, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the EGShares S&P Emerging Markets Domestic Demand ETF (EMDD) ...

PowerShares Global Agriculture Portfolio (PAGG) Shares Cross Above 200 DMA
Thu, Jan 22, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the PowerShares Global Agriculture Portfolio ETF (PAGG) crossed above ...

GAL Crosses Above Key Moving Average Level
Thu, Jan 22, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the SPDR SSGA Global Allocation ETF (GAL) crossed above ...

COMT Crosses Critical Technical Indicator
Thu, Jan 22, 3:54 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares Commodities Select Strategy ETF (COMT) entered into ...

Micron Technology Achieves #73 Analyst Rank, Surpassing VFC
Thu, Jan 22, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

ADRA Crosses Above Key Moving Average Level
Thu, Jan 22, 11:34 AM ET, by ETF Channel

In trading on Thursday, shares of the BLDRS Asia 50 ADR Index Fund ETF (ADRA) ...

EIDO Crosses Above Key Moving Average Level
Thu, Jan 22, 11:34 AM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI Indonesia ETF (EIDO) crossed above their ...

Notable Two Hundred Day Moving Average Cross - EDZ
Thu, Jan 22, 11:34 AM ET, by ETF Channel

In trading on Thursday, shares of the Daily Emerging Markets Bear 3x Shares ETF (EDZ) ...

Agribusiness (MOO) Shares Cross Above 200 DMA
Thu, Jan 22, 11:24 AM ET, by ETF Channel

In trading on Thursday, shares of the Agribusiness ETF (MOO) crossed above their 200 day ...

IGE, COP, OXY, EOG: ETF Outflow Alert
Thu, Jan 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IGE, COP, OXY, EOG Exchange traded funds (ETFs) trade just ...

LQD: ETF Inflow Alert
Thu, Jan 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: LQD Exchange traded funds (ETFs) trade just like stocks, but ...

IYR, SPG, AMT, PSA: ETF Inflow Alert
Thu, Jan 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IYR, SPG, AMT, PSA Exchange traded funds (ETFs) trade just ...

IJR, MMS, WST, CASY: Large Inflows Detected at ETF
Thu, Jan 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IJR, MMS, WST, CASY Exchange traded funds (ETFs) trade just ...

PBCT Named Top 25 SAFE Dividend Stock Increasing Payments For Decades
Thu, Jan 22, 9:44 AM ET, by ETF Channel

People's United Financial, Inc. (PBCT) has been named to the Dividend Channel ''S.A.F.E. ...

Eaton a Top Socially Responsible Dividend Stock With 3.0% Yield (ETN)
Thu, Jan 22, 9:34 AM ET, by ETF Channel

Eaton Corp plc (ETN) has been named a Top Socially Responsible Dividend Stock by Dividend ...

EWT Crosses Above Key Moving Average Level
Wed, Jan 21, 4:16 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares MSCI Taiwan ETF (EWT) crossed above their ...

IFGL Makes Bullish Cross Above Critical Moving Average
Wed, Jan 21, 11:34 AM ET, by ETF Channel

In trading on Wednesday, shares of the iShares International Developed Real Estate ETF (IFGL) crossed ...

FXG, STZ, RAD, HAIN: ETF Inflow Alert
Wed, Jan 21, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: FXG, STZ, RAD, HAIN Exchange traded funds (ETFs) trade just ...

CIU: Large Outflows Detected at ETF
Wed, Jan 21, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: CIU Exchange traded funds (ETFs) trade just like stocks, but ...

RPV, AIZ, SPLS, VLO: Large Outflows Detected at ETF
Wed, Jan 21, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: RPV, AIZ, SPLS, VLO Exchange traded funds (ETFs) trade just ...

SCPB: ETF Outflow Alert
Wed, Jan 21, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: SCPB Exchange traded funds (ETFs) trade just like stocks, but ...

EFA: ETF Outflow Alert
Wed, Jan 21, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: EFA Exchange traded funds (ETFs) trade just like stocks, but ...

FNI Crosses Above Key Moving Average Level
Wed, Jan 21, 11:24 AM ET, by ETF Channel

In trading on Wednesday, shares of the First Trust ISE Chindia Index Fund ETF (FNI) ...

Strong Insider Buying Reported in FCG Holdings
Wed, Jan 21, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the First Trust ISE-Revere Natural Gas Index ...

Broker Darlings of the Dow: Boeing Ranks As a Top 15 Analyst Pick
Tue, Jan 20, 12:54 PM ET, by ETF Channel

A study of analyst recommendations at the major brokerages shows that Boeing Co. (BA) is ...

Anadarko Petroleum Achieves #52 Analyst Rank, Surpassing Honeywell International
Tue, Jan 20, 12:54 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

IYF, MA, AXP, USB: Large Outflows Detected at ETF
Tue, Jan 20, 12:54 PM ET, by ETF Channel

Symbols mentioned in this story: IYF, MA, AXP, USB Exchange traded funds (ETFs) trade just ...

iShares U.S. Utilities ETF Experiences Big Outflow
Tue, Jan 20, 12:54 PM ET, by ETF Channel

Symbols mentioned in this story: IDU, D, EXC, AEP Exchange traded funds (ETFs) trade just ...

IYW, HPQ, EBAY, EMC: ETF Outflow Alert
Tue, Jan 20, 12:54 PM ET, by ETF Channel

Symbols mentioned in this story: IYW, HPQ, EBAY, EMC Exchange traded funds (ETFs) trade just ...

VYM, GE, CSCO, LMT: Large Inflows Detected at ETF
Tue, Jan 20, 12:54 PM ET, by ETF Channel

Symbols mentioned in this story: VYM, GE, CSCO, LMT Exchange traded funds (ETFs) trade just ...

VO: ETF Inflow Alert
Tue, Jan 20, 12:44 PM ET, by ETF Channel

Symbols mentioned in this story: VO Exchange traded funds (ETFs) trade just like stocks, but ...

USMV, BDX, ABC, MCD: ETF Inflow Alert
Tue, Jan 20, 12:44 PM ET, by ETF Channel

Symbols mentioned in this story: USMV, BDX, ABC, MCD Exchange traded funds (ETFs) trade just ...

VXF, AAL, ILMN, LNKD: Large Inflows Detected at ETF
Tue, Jan 20, 12:44 PM ET, by ETF Channel

Symbols mentioned in this story: VXF, AAL, ILMN, LNKD Exchange traded funds (ETFs) trade just ...

DXJ: Large Inflows Detected at ETF
Tue, Jan 20, 12:44 PM ET, by ETF Channel

Symbols mentioned in this story: DXJ Exchange traded funds (ETFs) trade just like stocks, but ...

VOO: Large Inflows Detected at ETF
Tue, Jan 20, 12:44 PM ET, by ETF Channel

Symbols mentioned in this story: VOO Exchange traded funds (ETFs) trade just like stocks, but ...

VNQ: ETF Inflow Alert
Tue, Jan 20, 12:44 PM ET, by ETF Channel

Symbols mentioned in this story: VNQ Exchange traded funds (ETFs) trade just like stocks, but ...

Archer Daniels Midland a Top Ranked SAFE Dividend Stock With 2.0% Yield (ADM)
Tue, Jan 20, 9:14 AM ET, by ETF Channel

Archer Daniels Midland Co. (ADM) has been named to the Dividend Channel ''S.A.F.E. ...

ZSL Crosses Below Key Moving Average Level
Fri, Jan 16, 3:54 PM ET, by ETF Channel

In trading on Friday, shares of the ProShares UltraShort Silver ETF (ZSL) crossed below their ...

HEDJ Makes Bullish Cross Above Critical Moving Average
Fri, Jan 16, 11:24 AM ET, by ETF Channel

In trading on Friday, shares of the WisdomTree Europe Hedged Equity Fund ETF (HEDJ) crossed ...

DBP Crosses Above Key Moving Average Level
Fri, Jan 16, 11:24 AM ET, by ETF Channel

In trading on Friday, shares of the PowerShares DB Precious Metals Fund ETF (DBP) crossed ...

iShares U.S. Broker-Dealers (IAI) Enters Oversold Territory
Fri, Jan 16, 11:24 AM ET, by ETF Channel

In trading on Friday, shares of the iShares U.S. Broker-Dealers ETF (IAI) entered into oversold ...

VB, TERP, RNG, I: ETF Inflow Alert
Fri, Jan 16, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VB, TERP, RNG, I Exchange traded funds (ETFs) trade just ...

Vanguard Growth ETF Experiences Big Inflow
Fri, Jan 16, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VUG, AMGN, ABBV, CELG Exchange traded funds (ETFs) trade just ...

SPDR S&P Homebuilders ETF Experiences Big Inflow
Fri, Jan 16, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: XHB, OC, USG, AAN Exchange traded funds (ETFs) trade just ...

FXH, BMRN, EW, PDCO: Large Outflows Detected at ETF
Fri, Jan 16, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: FXH, BMRN, EW, PDCO Exchange traded funds (ETFs) trade just ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

RAFI ETFs YTD: Boom Or Bust? | Self Directed Investor | Copyright © 2008 - 2015, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.